Verus Investments, which last year kicked-off an effort to include more emerging and environmental, social and governance (ESG) managers on its approved-manager list, is bringing more thought to how it assists clients in identifying emerging managers and implementing their ESG mission-related initiatives, according to Eileen Neill, a managing director and senior consultant with the firm. Neill is charged with spearheading the initiative with Margaret Jadallah, also a managing director and senior consultant. Neill joined the firm last autumn from Wilshire Associates.
“We’ve now got a taskforce in place, and we’re adding significant capability in emerging manager and ESG research,” said Scott Whalen, an executive managing director with the firm. “In the past we were largely agnostic regarding those factors. Now, we have identified a developing market need that needs to be addressed. This isn’t about a returns-driven strategy, this is really driven by client philosophy—if they have a preference for emerging managers or ESG-focused strategies, we want to help them meet that need,” he said.
Whalen said the firm is responding to expressions of interest in emerging managers and ESG by the firm’s institutional clients and prospects. He noted that institutional investors in general are exhibiting an increasing interest in ESG with some public plans focused on the diversity aspect of emerging managers. “We’re not sure yet if the need is significant or more smoke than fire at this point, but we are setting up our infrastructure now to address it,” he said.
Neill said the firm assists clients in making three basic decisions when consulting with institutions on emerging managers and ESG matters:
- Strategy—“What is the overall emerging manager or ESG objective? What are we looking for—what are the investment goals?”
- Execution— “How are we actually going to implement our strategy or meet our objectives?”
- Monitoring—“How well is our implementation approach performing in meeting our goals?”
For the ESG initiative, Verus is using MSCI BARRA’s ESG rating methodology to help it identify existing ESG exposures in clients’ portfolios, Neill said, emphasizing that this kind of analysis does not lend itself to a one-size-fits-all approach. Rather, solutions proffered by the firm will be customized to clients’ specific needs and circumstances.
Regarding its emerging managers’ effort, prior to joining Verus in early 2016, Jadallah spent 14 years with Strategic Investment Solutions, the predecessor firm to Verus-San Francisco, where she was a founding member, generalist consultant and director of manager research. She has a strong background in emerging managers, having worked for one for many years, Neill said, referring to Jadallah’s earlier tenure at Bivium Capital Partners, where she was a managing director at the manager of emerging managers between 2008 and 2014.
This isn’t about a returns-driven strategy, this is really driven by client philosophy—if they have a preference for emerging managers or ESG-focused strategies, we want to help them meet that need.
Plan sponsors lining up?
Despite net decline in assets under management among emerging mangers over the last few years (according to eVestment, at the close of Q4 2017 aggregate emerging manager assets under management stood at approximately $222.7 billion, down from $512 billion at the close of Q3 2015) of late, several large pension funds have announced their intention to invest more money with emerging managers and/or into ESG strategies.
For example, the $151 billion Texas Teachers Retirement System (TRS) earlier this year opted to channel an additional $3 billion into its emerging managers program over the next three years. TRS has committed some $4.7 billion to 151 emerging managers since 2005.
The $308 million Spokane (Wash.) Employees’ Retirement System is searching for an active emerging markets equity manager and an opportunistic credit manager to run portfolios of about $10 million each.
And the California Public Employees’ Retirement System (CalPERS) last fall allocated an additional $350 million to its real estate emerging managers program, a discretionary separate account managed by Canyon Partners Real Estate, according to a news release from the $338.8 billion Sacramento-based pension fund. The additional $350 million brings CalPERS’ allocation to its real estate emerging managers program to $1 billion.
On the ESG side, eVestment reports aggregate AUM of $297.7 billion at the close of Q4 2017 up from $225.9 billion at the close of Q4 2014.