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A Canter, Futuregrowth, IRF Conference 09 2010

A Canter, Futuregrowth, IRF Conference 09 2010. Andrew Canter, Futuregrowth Asset Management. September 2010. Responsible Investing: Should it be regulated? Can it be regulated?. A Canter, Futuregrowth, IRF Conference 09 2010. Agenda. Responsible Investing: What it is… what its not

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A Canter, Futuregrowth, IRF Conference 09 2010

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  1. A Canter, Futuregrowth, IRF Conference 09 2010

  2. Andrew Canter, Futuregrowth Asset Management September 2010 Responsible Investing: Should it be regulated? Can it be regulated? A Canter, Futuregrowth, IRF Conference 09 2010

  3. Agenda • Responsible Investing: What it is… what its not • SRI & ESG: Interjecting some reality • SRI: Taking responsibility... Exercising choice • Prescription? • What can be done to facilitate SRI? A Canter, Futuregrowth, IRF Conference 09 2010 6

  4. Futuregrowth’s 3 categories of Responsible Investing 1. Positively screened investments “ I want my money to do good things” (ieinfrastructure, BEE, affordable housing, SMMI finance) 2. Negatively screened investments • “I don’t want my money to support bad things” (ietobacco, alcohol, gambling, arms, pornography) 3. Investor engagement “My money has power and responsibility” (Using plutocracy to effect change) A Canter, Futuregrowth, IRF Conference 09 2010

  5. “Economic” or “Social” motives Responsible Investing Economic Social • Positive/Negative Screening: • Environmental (E) • Social (S) • Governance (G) • Investor Activism Socially Responsible Investing • Goals: • Risk Reduction • Returns • Goals: • Express Values • Developmental impact High impact: specialised Low impact: scaleable, low cost A Canter, Futuregrowth, IRF Conference 09 2010

  6. Economic ESG: “Mainstreaming” It’s a matter of time before… … statistics prove that “good” companies perform better… … and ESG screens are in all investment decision processes. See “Does Governance Matter to Long-Term Investment Performance?” David Beatty, CFA Institute Conference 05/2008 A Canter, Futuregrowth, IRF Conference 09 2010

  7. Points of confusion… what SRI is and isn’t IS SRI THE SAME AS POSITIVE PROCUREMENT? SRI = how the money is invested (returns & impact) PROCUREMENT = who you choose to work with • Query Service Providers’ • BEE ownership & control • Staff composition & training • Procurement policies • CSI program • SRI Product • ethics, industry engagement, environmental impact, etc. A Canter, Futuregrowth, IRF Conference 09 2010

  8. Points of confusion… what SRI is and isn’t IS SRI THE SAME AS CORPORATE SOCIAL INVESTMENT? SRI = how the money is invested (returns & impact) CSI = giving back to the community (grants, gifts, goodwill) A Canter, Futuregrowth, IRF Conference 09 2010

  9. Points of confusion… what SRI is and isn’t IS SRI AN ASSET CLASS? SRI is a theme, must fit into an strategic asset allocation 6% SRI… strategic asset allocation maintained A Canter, Futuregrowth, IRF Conference 09 2010

  10. Is it developmental? BRIDGE CITY MALL, KWA MASHU • Services Inanda, Ntuzuma, KwaMashu • 10% reserved for local shop owners • Local subcontractors • Transport hub: train, bus, taxi • Government offices • Accessible services; price:quality A Canter, Futuregrowth, IRF Conference 09 2010

  11. Points of confusion… what SRI is and isn’t DOES SRI MEAN LOWER RETURNS? • Investment principles prevail (Risk:Return) • SRI is not subsidy finance A Canter, Futuregrowth, IRF Conference 09 2010

  12. SRI Equity Performance A Canter, Futuregrowth, IRF Conference 09 2010 6

  13. Alexander Forbes Bond Survey Alexander Forbes TDI Bond Survey 3 YEAR RISK VS RETURN GRAPH AS AT 30 JUNE 2010 Futuregrowth Infrastructure & Development Bond Fund Community Gilt Fund Cadiz Infrastructure Bond Fund A Canter, Futuregrowth, IRF Conference 09 2010

  14. Community Property Fund Income and capital performance as at 31 August 2010 *annualised A Canter, Futuregrowth, IRF Conference 09 2010 6

  15. If investors get risk adjusted returns… …then who offers subsidised capital? THE ROLE OF GOVERNMENT & DEVELOPMENT FINANCE INSTITUTIONS (DFIs: DBSA, IDC, Landbank, Khula, NHFC, etc, etc) Private sector keeps score by returns, public sector uses a balanced scorecard A Canter, Futuregrowth, IRF Conference 09 2010 DFI = Development Finance Institution

  16. Is it developmental? TRUST FOR URBAN HOUSING FINANCE (TUHF) • Mortgage lender in Johannesburg inner city • Lack of diversity in book, short life, not profit driven... • ...but capacity & capital from DFIs DFI = Development Finance Institution A Canter, Futuregrowth, IRF Conference 09 2010

  17. SRI & ESG: Interjecting some reality A Canter, Futuregrowth, IRF Conference 09 2010

  18. Interjecting some reality into ESG (1) • Narrow universe… lower portfolio efficiency • Excludes some high ROE/cash flow sectors • Evidence of out-performance? • SRI defies definition A Canter, Futuregrowth, IRF Conference 09 2010 6

  19. Interjecting some reality into ESG (2) EDHEC Business School 6 year study (2002-2007) of 124 European SRI funds: “did not identify alpha values both positive and statistically significant for SRI funds. In fact… most… obtained negative, but not statistically significant, alpha…” “it seems regrettable to us that, despite the lack of empirical evidence of… outperformance, asset management firms and consultants have larded their communications with promises of SRI fund outperformance and failed to express the necessary reservations.” A Canter, Futuregrowth, IRF Conference 09 2010 6

  20. SRI Equity Performance DJSI World = DJ Sustainability Index World. DJTSM = DJ Global Large Cap Total Stock Market Index A Canter, Futuregrowth, IRF Conference 09 2010 6

  21. SRI: Taking Responsibility… Exercising Choice A Canter, Futuregrowth, IRF Conference 09 2010

  22. Is it developmental? DE LIEFDE HOENDERS • Mortgage finance to build houses • Support/off-take from large processor • Loans on production cash-flows After Before After … 30% PDI farmworker ownership A Canter, Futuregrowth, IRF Conference 09 2010 PDI = Previously Disadvantaged Individual, BEE = Black Economic Empowerment

  23. SRI: Fads, Trends and Fashions… A Canter, Futuregrowth, IRF Conference 09 2010

  24. Question Accountants and you should get the same answer Question Doctors and you hope to get a similar opinion Question Asset Managers… you’ll get numerous answers! Living in a world of non-conforming views … ask about SRI and you will get double the number of opinions A Canter, Futuregrowth, IRF Conference 09 2010

  25. Is it developmental? SA TAXI FINANCE • Vehicle finance for taxi drivers • 3000 taxi owners/drivers... Over 5500 families affected • Each taxi a small businesses/SMMEs • Many drivers denied finance by banks A Canter, Futuregrowth, IRF Conference 09 2010

  26. Prescription: Do the ends do justify the means? • A challenge to property rights: Is it constitutional? • Creates uncertainty around long-term savings • Money is not the problem – capacity to deliver remains a problem • No SRI standard: Who decides what to prescribe? • Distorts capital markets... its a “tax” on returns • If government prescribes, will they underwrite the risk? • Government can influence • a) the funds where they are direct stakeholders, and • b) the well capitalised DFIs • Danger of money flood and poor deals: Value will be lost by funds Reg 28: should be enabling“retirement funds are encouraged to consider the broader social impact of their investments on the development of the nation” A Canter, Futuregrowth, IRF Conference 09 2010

  27. Is it developmental? TRAC – N4 Toll Road • Johannesburg-Maputo toll road • Public-Private Partnership • 30 year concession • Privately funded and managed FSC Council: Toll roads are not infrastructure A Canter, Futuregrowth, IRF Conference 09 2010

  28. Socially Responsible Investing Principles • “SRI” is a matter of choice and judgment… • …no “one size fits all”, and investors should choose their aspirations • Investors should demand suitable returns • Subsidies/kick-starts are the job of government • SRI is not an “asset class” funds’ asset allocation must prevail • Differentiate SRI from Positive Procurement (and do both) • Regulation is very difficult, conflicted, and subjective You can deliver impact, while also looking after your members A Canter, Futuregrowth, IRF Conference 09 2010

  29. What can we do to promote SRI? • Support the principles required for a modern economy • Property rights, rule-of-law, free press, free markets, education • Take a stand against corruption, conflict-of-interest. • Build investment processes that earn sustainably high returns • Find a common language of RI/SRI • Be honest about risks and returns • Admit that SRI is full of judgment and biases • Do unto others money what you would do unto your own money A Canter, Futuregrowth, IRF Conference 09 2010

  30. Is it developmental? GRACE BIBLE CHURCH, SOWETO • Evangelical church in Soweto • 11,000 members • Provided mortgage loan phase 1 • Finance denied by bank • Community facility • ABET/training/bursaries • Computer school • Initial loan was about $1m phase 2 during construction Sometimes SRI is doing something that others won’t … A Canter, Futuregrowth, IRF Conference 09 2010

  31. A Canter, Futuregrowth, IRF Conference 09 2010

  32. A Canter, Futuregrowth, IRF Conference 09 2010

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