Funds Europe – A recent Funds Europe survey conducted with Jersey showed the increasing importance of ESG investing. How is Jersey – with its emphasis on alternatives – coping with this demand?
Macleod – There continues to be a huge cultural shift in attitude towards ESG, driven by a transfer of wealth to millennials and Generation Z who see sound ESG credentials as a prerequisite to investing. Managers also recognise that it’s good for returns.
From a Jersey perspective, there is a real opportunity to play to our strengths and help general partners and limited partners manage some of the risks associated with ESG such as ‘greenwashing’. As a jurisdiction, Jersey lends itself well to the G within ESG. Our track record of governance brings with it a comforting level of scrutiny and rigour, which ESG managers will see as vital when selecting their jurisdiction.
We also see increased demand for sophisticated and automated investor reporting solutions that pull together meaningful data including metrics around ESG.
Haithwaite – Increasingly, investors are scrutinising funds they invest in and the presence of ESG policies is becoming a key component of due diligence. The Jersey regulator has issued a consultation paper on proposals to enhance disclosure and governance requirements for sustainable investment funds. If you say you’re a sustainable fund, you must show you are and have the systems to monitor that.
Those changes – aimed at combatting greenwashing – will potentially impact all Jersey funds and service providers.
If adopted, the requirements will drive an increased demand for ESG advice. That will require skilled people at board level and in the legal and administration community. Everybody in the fund management industry will have to upskill to meet that demand.
Burgess – More clients are focusing on social impact investing, which ties in with greater investor demand for ESG. Millennials have been great at driving this. People who have been around longer and sit on boards need to understand what questions they should be asking and how to test the veracity of statements made in prospectuses and annual accounts.
The challenge in alternatives is where the data is held and the different layers of it. A real estate fund might have multiple layers of entities and data held in a multitude of places. There is a movement towards having one source of truth and a data flow from the underlying asset to the investor’s own personal interest.
Coughlan – In my experience, the alternatives sector has been slower at adopting technology mainly due to the complexity and subjectivity involved, thereby making automation quite difficult. However, we need to identify and implement solutions in a space where there is certainly downward pressure on margins and funds are getting larger with greater reporting requirements. ESG is here to stay as Generation Z continues to represent a greater percentage of investor pools. If larger managers are not focused on ESG, I personally feel that they are on the back foot.
From an administration perspective, I view ESG as an area of significant opportunity given the inevitable reporting requirements and expectations from Investors. Added to everything else that managers are currently trying to manage, it’s proving more and more difficult. I therefore expect to see an increase in the use of outsourced partners.