Hong Kong-based family office RS Group is heavily focused on pursuing environmental, social and governance (ESG) principles because it believes it can more easily support sustainable development within them.
The group takes a proactive stance towards investing in emerging markets, for example, on the basis that this is exactly where investors can contribute most in terms of supporting sustainable development. This is reflected in an allocation to EMs of 19% in the listed equity segment, compared to 7% for the MSCI All Country World Index, and 24% in private equity “as opposed to nil by traditional private equity investors,” managing director Ronie Mak told AsianInvestor.
Manager screening is supervised by the group’s Zurich-based asset management adviser Ivo Knoepfel, from the firm onValues.
“For us, it’s really about ensuring that impact is baked into the DNA of the fund managers and not just “talk”.. We can achieve that by talking to their senior management, understanding their internal controls and processes, governance and impact reporting. We look at whether they are signed up to any global principles or using global reporting standards such as the UN Principles for Responsible Investment (PRI), IRIS metrics, GIIRS, and B Corps.
The family office typically invests through 10 to 15 fund managers, though they tend not to be the big names. “We really endeavour to understand the managing team and how much conviction they have. Medium and smaller managers will be more willing to have that level of engagement” said Mak.
The group will also intentionally support smaller managers and first-time managers and strategies, especially those that focus on Asia: “We really want to allocate capital in a way that will help the field grow.”
Performance overall has been consistently around 5% over the last seven years, in line with benchmark, with.year-on-year fluctuations partly due to the slight tilt of the portfolio towards growth companies and mid-caps. Fluctuations can also be attributed to an underweight in financial services, which sustainable investors typically view critically due to its poor corporate governance, and strong overweight of industrial and technology sectors, owing to their focus on the environment.
A negligible exposure to the energy sector due to RS Group’s decision in 2014 to divest from fossil fuel exploration and production companies also serves as another factor influencing performance,
Currently, the management team is reviewing the investment portfolio. “Now that we have demonstrated that we, as an Asia-based investor, can build a 100% responsibly invested portfolio, we are moving to phase two, where we hope to achieve deeper impact and bring more of that to Asia in particular,” said senior associate Joan Shang.
RS Group is looking for initiatives with a focus on climate change. So far, it has invested in one fund that is specifically climate-related, Althelia Climate Ventures, and has partnered with ADM Capital Foundation to support local environment NGOs and initiatives. But Shang said the review could result in a dramatic change in how the portfolio is positioned on climate. “We may be doing more engagement, exploring new financial vehicles around climate finance or related investments.”
Mak’s view is that Hong Kong is “a bit behind on the whole climate agenda”.
In its first ten years of operation, Mak said RS Group “has come to acknowledge there are myriad grey areas for investors” when it comes to impact and sustainability. “Above all, we have learnt to let go of preconceptions on how investing or philanthropy ought to be done.”
Among founder Annie Chen’s lessons for other families, she said investing in the impact ecosystem is important, especially here in Asia. “Partnerships and collaboration become more important to successful impact investing than for traditional capital markets.”
This article was adapted from a feature in the December 2018/January 2019 edition of AsianInvestor magazine.