November 2007

COMPANY PROFILE - ZURICH: Ethical competition

Zurich’s Sustainable Asset Management stole a lead on environmental issues, but it now faces more competition in the sector. Fionnuala Synnott interviews Reto Ringger, CEO 07_11_reto-ringger.jpgSustainability is on everyone’s minds, whether it’s preventing global warming or making the most of waning resources. Reto Ringger, chief executive of Zurich-based Sustainable Asset Management (SAM) began to think about the potential link between sustainability and financial products in the 1990s. “I saw that there were opportunities for both institutional and private investors”, he says. In 1997, Ringger brought SAM’s first investment fund to market, with Swiss Re as a cornerstone investor. “We were lucky to find Swiss Re as an anchor investor as it gave the offering credibility. Swiss Re is not a philanthropic reinsurer so it gave the right message to the market.” At the time, sustainable investment wasn’t yet a mainstream concept and it wasn’t easy to convince investors of its merits. Many confused it with socially responsible investment (SRI). “It was easier in the markets where there was no tradition of SRI. In the UK and the US, where there was an established SRI offering, investors immediately put us in the same box as SRI practitioners”. But, as Ringger is quick to point out, SAM’s business model is about offering sustainable investment strategies that take a company’s corporate governance and environmental strategies into consideration. The fledgling business was given a boost by the establishment of its first index. “Our sustainable index was initially a marketing idea. Then we joined forces with Dow Jones in 1999 and word spread. The index acted as a platform for understanding corporations’ position on sustainability and gave us an insight into companies from both a corporate and an investment point of view.” Instead of focusing on why companies were excluded – a typical SRI approach – SAM chose to concentrate on the investment criteria used in order to give a positive message to the market. “When speaking to investors, we really used the example of corporates and their technologies. This approach took time but now we are helped by the message in the newspapers. Investors are hearing the same story from the media and CEOs.”

Investor base
SAM’s investor base is almost equally split between private and institutional investors, with interest from private investors in particular increasing in the past two years. But Ringger expects this balance to change as institutional investors try to build a more sustainable portfolio. “Currently, US$8 trillion are subscribed to the UN’s SPPI [Science and Public Policy Institute’s latest report] so institutional investors are aware that sustainability will affect their portfolio. Consultants are also playing an important role and will drive further interest in this area.” The asset manager is currently looking to expand its US investor base and launched its family of sustainable-investment strategies to US institutional and retail investors in September this year. SAM plans to introduce three strategies to the US market focusing on water, climate change and global sustainability. The Swiss fund manager is also marketing to UK institutions in order to promote its climate change-themed products. Ringger is particularly proud of SAM’s themed funds. Strategies with the longest track record include its focused global equity fund and its water-themed fund. “The objective is to invest in [commodities such as] water and energy. In this way, we have been able to outperform traditional benchmarks and attract the interest of the market.” The firm is also planning to launch one of the world’s first sustainable hedge funds. “In the past, alternatives were not that important because there wasn’t that big a demand in that field, but the market has changed. Long-short debt products and weather derivatives, in particular, will become very important. We are building capacity because there is more interest in these instruments,” says Ringger.

Competitive market
Now that sustainability has become a priority for everyone, competition in the sector is hotting up. “So far, it has been quite easy because we were one of the only suppliers in the sector. But, in the past couple of years the likes of AXA, Goldman Sachs, UBS and Merrill Lynch have been thinking about how to integrate sustainability issues into their offering. There is an increasing number of suppliers and the competitive landscape is changing fast.” Although the number of competitor offerings is growing, Ringger is confident that the combination of SAM’s established process, team and track record will allow it to compete with the larger players. “The implementation of sustainability in a portfolio takes an experienced team with a mixture of backgrounds. We have been carrying out investments since 1999.”
But Ringger realises that, as the market becomes more sophisticated, the major challenge for SAM will be to choose a specialisation. “At the moment, we are one of the largest and most experienced sustainable investment firms. We cover a lot. We are pretty well-positioned but the challenge is to stay focused. We won’t be able to cover every aspect of the sustainability sector in the future.” Distribution is also a concern, although this is set to change now that the asset manager has the backing of Dutch giant Robeco. (The firm is 64% owned by Robeco). At the moment, there are “three legs” to the asset manager’s distribution process. “We have our own sales people in Germany, Switzerland and Italy as well as the Robeco platform in the US and France.” Third-party distribution is also important with Julius Baer creating white-label products for the asset manager. Recent high-profile wins include a mandate to administer a newly launched theme fund (the Nomura Aqua fund) for Japanese bank Nomura as well as France’s largest socially responsible investment mandate: a e400m brief from the country’s civil service pension scheme, which the firm won in February of this year. Wins such as this have taken the niche asset manager’s total assets under management to e2.6bn. When asked about the hot topics of the future Ringger says: “Water will remain a big issue as growing urbanisation leads to higher water and energy costs. We will have to become more efficient because of a shortage of commodities. Meanwhile, changing demographics will lead to a huge increase in waste. In five years, industrial waste in China will have increased by 70%.” But Ringger feels that investors are now on the verge of understanding sustainability. “Sustainability is macro-economics – so many issues can affect it.” He takes the example of Antarctica. “The Arctic ice is melting faster than the IPCC [the Intergovernmental Panel on Climate Change] report 2070-2100 predicted. This could be a disaster for Panama as businesses will prefer to cut their journey by as much as 50% by transporting goods from Scandinavia to Japan.” Although more research has yet to be done, Ringger takes comfort from the fact that big business is starting to ask the right questions. “Most investors haven’t read the Stern report but institutions know they have to cover these issues as they will have a substantial impact on their business.” © fe November 2007

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