These are the words of Jacco Minnaar, chair of the Board of Triodos Investment Management (Triodos IM), in a comment on the annual results for 2019, which were published last week. The assets under management have grown by 18% to EUR 4.9 billion, which is due to the inflow of new capital as well as to higher returns.
Minnaar acknowledges that the outbreak of the corona virus will have an impact in 2020. But he also points out that, due to the lower correlation of many of the Triodos funds with the developments on the financial markets, Triodos IM is relatively well-positioned.
Asset management has become a transparent competition game: you either offer ready-to-wear, i.e. passive solutions, or tailoring. As Minnaar puts it, the parties that offer tailored solutions are specialists in deep ESG Integration, private debt, private equity and emerging markets. These are areas where many large investors have taken refuge in their search for yield.
Higher returns or, as is the case for Triodos IM, better risk-return characteristics of the underlying portfolios, allow these parties to demand relatively higher fees. Minnaar: “Of course we, too, operate in a competitive market. In a market like this you need to be sure that you are charging the right fees. We cannot compete on fees like the large ETF providers, but neither are we ‘stuck in the middle’. We definitely note price pressure, but do not expect a dramatic decline in fees.”
Minnaar does recognise that in order to survive in the longer term, a certain scale is required. “Compared with the large asset managers, we are perhaps a small fish, but in terms of impact investing we are one of the largest players. Furthermore, in view of the social developments this is a growth market.” Last year, the global market for impact investments grew to EUR 500 billion and the trend is rising.
Minnaar acknowledges that competition is increasing, but that Triodos IM distinguishes itself by its long track record. Furthermore, a few years ago the decision was taken to in-source that part of the investment expertise that was still provided by external parties, in order to ensure even stronger integration of the financial and sustainable analyses. As part of this process, the alliances with Delta Lloyd Asset Management and ABN Amro MeesPierson were terminated, bringing all the elements of the management of the Impact Equity and Bond funds (Triodos SICAV I) under one roof. Furthermore, in 2018 it was decided to transfer the management of the discretionary portfolios of Triodos Private Banking Netherlands to the asset management branch.
This step was taken in order to enhance the alignment of the funds that invest in listed assets with our impact investments. This move is now being rewarded. In 2019, the assets under management of these impact funds grew by 36.5%, to EUR 2.02 billion. Combined with the expansion of the other funds managed by Triodos IM, this development serves Triodos’ mission: to make money work for positive social and ecological change.
As can be read in Triodos IM’s annual impact reports, the funds it manages have contributed to the reduction of CO2 emissions, have ensured that 98,000 smallholder farmers in nine emerging countries received immediate payment for their harvests and provided funding for 109 institutions that focus on inclusive finance in Latin America, Asia and Africa.
Triodos IM commissioned Ortec Finance to study the effect that impact funds have on the risk and return characteristics of a well-diversified portfolio. These effects are positive. Moreover, it was found that their correlation is relatively low, which provides diversification benefits. However, Minnaar does warn that in times of crisis correlations may increase.
In the medium and longer term, the funds provide relatively stable returns with low volatilities. Furthermore, they have a high Sharpe ratio and a low correlation with risk drivers. The study focused on Triodos Microfinance Fund, Triodos Renewables Europe Fund and Triodos Groenfonds. Minnaar: “This study confirms what we have known for a long time, that impact investing not only contributes to bringing about positive change, but also has positive risk and return features. Asset managers and gatekeepers note growing demand from their customers. Such empiric evidence helps them to also justify the financial outcome.”
More than financial
“In this respect the coronavirus crisis also very much puts things into perspective. More and more people are now asking themselves what is really important in life. The answer to that question is: contact with other people. That is something that happens in the real economy. And that is why this crisis, much more so than the one that hit us in 2008, will be used as a launching platform for changes to the system. We must therefore implement the SDG’s, which improve the quality of life. Life is about more than just the purely financial.”
For more information about Triodos IM's annual figures, please read the press release.
This is a translation of an article published earlier on Fondsnieuws.