Kasper Elmgreen, head of equities at Amundi, tells Funds Europe about his 2021 planning, the role of ESG in equity investing, and his aims for this department.
Hi, Kasper. You took over as head of equities in January 2019. What have your goals been in this time and, looking back after nearly two years, what are your thoughts?
Traditionally, Amundi had been stronger in other areas such as fixed income, but I felt there was an opportunity to build a strong, active equity business. We had acquired Pioneer, which had a lot of exposure to equities, and there were some good legacy pieces from Amundi, so the task was to bring these things together. Looking back, I’m extremely happy with where we are now. We spent the first six to nine months focusing on the engine room and how the business was structured. We made some modifications to how we’ve organised over investment teams because it was a way to get people together that worked on similar offerings, to increase collaboration, but also to create a stronger environment in terms of what we could deliver.
And the plans going forwards?
We are now executing that plan, and we expect to spend more time in the showroom, having dialogue with clients and delivering on the structure and processes that we have defined.
The Covid-19 pandemic has obviously changed things for everyone this year, and in ways that we could not have predicted. How has it affected you?
The considerations in March were around ensuring employees are safe and in delivering value to our clients in a completely new work environment. Then, it was navigating unprecedented markets. What we saw in March was the quickest and most severe drop on record. Some of that cloud has been lifted because we have the US election behind us and vaccines in front. We can look back on a truly extraordinary year. I am optimistic for next year.
What does your planning for next year look like?
We’re not planning for one outcome, but for a range of scenarios. The most likely, and the one we were planning for, was that a vaccine would be developed, even though there was uncertainty about the timing. What’s been surprising, though, is how quickly the vaccine came along. There are now three vaccines with their high efficacy. Some of those vaccines, though, have logistical complications so it’s going to be a bumpy road to recovery.
You said you plan for a range of scenarios. We’re speaking a few weeks after the US election. Amundi said in a recent brief that it does not expect a significant departure when it comes to China from Trump’s conflictive stance. Does the prospect of an incoming Biden administration change that?
With Biden, I expect a stance towards more international collaboration. I think he will reach out to his allies and try to re-establish a strong relationship. On the relationship with China, I think the tough stance is one that has had bipartisan support in the US. So, while there is a very strong likelihood that some of the tariffs might be lifted, I think the tough US stance is one that will continue.
ESG is one of those subjects that comes up in every investment conversation. Amundi have been pushing a new ESG concept recently, no? Your company, just over two years ago, announced a three-year drive to integrate ESG considerations into investing. How is that being reflected in your current offerings?
It was an ambitious plan set out by our CEO, and we’re well on track to deliver. While an important milestone, ESG integration requires continuous evolution and refinement. Recently, we’ve launched a new concept which we’re proud of. It’s a fundamental approach to identifying the companies that are moving towards greatness on ESG.
Moving towards greatness?
We work to identify the companies in the middle of the ESG pack where we believe there will be a credible and sustained improvement in ESG. When companies that are fundamentally attractive improve their ESG credentials we typically see their share prices rerate. We believe investing in this group of companies can provide not only superior risk-adjusted returns, but also a positive ESG impact because you are working with them to improve. All this is over a multiyear period, and it starts with a decision by managers to address ESG proactively.
Do you have an example?
Let’s take a clothing company. There’s probably 400 data points on ESG. There are a few data points, however, that are particularly material here, such as the supply chain. Who is making the clothes? How are those people being treated? What’s the environmental impact? You need to understand what this looks like, and whether these data points are showing improvement, and it is deliberate and sustainable. It requires fundamental analysis and dialogue with the company.
They like this?
They understand that these ESG issues are a risk because when they blow up, it hurts them, their clients, and their stakeholders. We work to address these risks and explore opportunities. This causes a re-rating. And for companies in the middle or at the lower end of the pack, that re-rating can be quite significant. If there’s a lot of risk in the company, investors require a higher cost of capital.
You say the companies are engaging in this, but what has been the take-up?
We published a paper on this, and I had the CFO of a major European company call to discuss the concept. Companies see both potential for re-rating when they improve on ESG, but they’re also under increasingly pressure from a wide range of stakeholders. We’ve launched two funds focusing on this, and our plan is to add more products into this space next year.
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