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French (Canada) - Nordic Public Sector Pension Fund
- 2023
- ESG Equity
- USD 50 million
- Global
- 2% p.a. outperformance versus benchmark (gross of fees)
- Pooled funds
- Manager research
Our specialist says:
Due to the significant variability in how different managers implemented ESG principles a key focus throughout the search process was reviewing and challenging the depth of ESG integration, from the initial idea generation trough to the ESG risk management and subsequent engagement efforts for invested companies. Importantly, the focus on ESG did not compromise performance. bfinance were able to identify global equity managers with strong ‘dark green’ ESG credentials who also demonstrated a track record of compelling alpha generation.
- 441Considered
- 59Long List
- 10Shortlisted
- 4Finalists
- 1Selected
Client-Specific Concerns
The asset owner, a Nordic private pension plan, was seeking one global ESG equity manager to complement their existing global equity allocation. The investor was open to all management and investment styles. The investor required a minimum three-year track record and a pooled fund with at least USD 200 million in assets in order to satisfy their internal and domestic regulatory concentration limits.
The investor wished to prioritise strategies that provided an emphasis on ‘strong ESG integration’ and was able to demonstrate this through their investment process, engagement and firm level commitments. Additionally, the fund had to be domiciled in an OECD country and fully invested with minimal cash holdings
Outcome
- Assessing ‘ESG integration’: One of the challenges was the variability in how different managers integrated ESG into their investment processes. While some managers had well-defined and deeply ingrained ESG practices, others were still in the process of developing their ESG frameworks. This disparity required bfinance to conduct a careful and nuanced evaluation to ensure that only those with robust and credible ESG integration were considered.
- Maintaining diversified style options: The focus on ESG tended to translate into a ‘quality’ bias amongst managers. However, there was a degree of style diversification in the initial universe of proposals with some strategies presenting a value or 'core' tilt. Although the client was open to both systematic and discretionary approaches, less than 10% of proposals were systematic or ‘combined’, likely due to the company-level ESG analysis and active engagement sought, which favoured fundamental research teams.
- Balancing ESG and alpha generation: A strong focus on ESG resulted in managers progressed to the later stages having ‘darker green’ ESG credentials. This did not come at the expense of financial performance, with bfinance identifying a pool of managers who were able to demonstrate a history of strong alpha generation as well as ESG
