In my role as an investment adviser, I am required to listen carefully – and objectively - to presentations by fund managers, custodians, consultants and others servicing the institutional and pension fund investment world. I don’t like to think about how many presentations there have been over the years, but it must run into the hundreds. On the whole, these presentations are professionally delivered by skilled and competent individuals, for whom I have much respect.

Yet when I recently attended Resonance’s annual strategy day, as one of the non-executive Board Directors, it struck me that I have never before come across a firm with such a strong, cohesive, and united vision, as the one that runs through the veins of staff at Resonance. This led me to think: why are shared values important for a company, do investors need to worry about the mission and values of a fund manager, and if yes, how can this be ascertained from the brief presentation that is given at a typical ‘beauty parade’ of shortlisted candidate firms?

My starting point, in my thought process, was to compare the mission statements of some well-known and well-respected asset managers. Below is a sample:

• Our mission is to create a better financial future for our clients.
• Our vision: the world's most trusted partner in delivering investment simply.
• Our goal: the creation of long-term value to assist [our clients] in meeting their future financial requirements.
• We aspire to be one of the world’s great specialist banking groups, driven by our commitment to our core philosophies and values.
• We are active managers of capital, working to outperform the market and deliver results for our clients.

These are commendable statements and I can see positive aspects in each one. As a potential investor, I can take comfort from knowing that the manager wants (for example) to create a better financial future for me. Since the trustees of a pension fund have a fiduciary responsibility to ensure that their fund manager is not going to squander their money, attributes such as ‘trust’, ‘creating long-term value’, and ‘specialist skills’ are important and necessary.

Yet I am still left wondering whether there isn’t something missing from this, particularly given the recent trend for pension funds to want to embed environmental, social and governance issues (ESG) into their investments, in addition to achieving stable risk-adjusted returns.

At Resonance’s strategy day, Daniel Brewer, the Chief Executive, asked the team to consider their own Vision, Mission and Values statement:

• Our vision, mission and values are personified in our people. We believe that change is possible and that one day, aligning profits with social impact will be the norm.

The first point to note is that Resonance’s mission statement talks about “our people” – the culture is created by the staff who work there. I am confident that, if an investor were to ask any employee of Resonance to describe the firm’s vision, mission and values, then every one of them would be able to articulate that. They clearly live and breathe their company’s vision and aspiration in all that they do. Indeed, much of the strategy day was spent with different members of the team (from junior to senior) sharing that vision with others.

The second point is that the asset management industry should not ignore the investment community’s growing interest in ESG. Investors are thinking more and more about the social impact of their investments. In a 2016 Morgan Stanley survey of high net worth investors, for example, 82% of millennial respondents expressed an interest in socially responsible, sustainable and impact investing. That compared with 45% of the whole universe of those surveyed.

This trend will ultimately feed through to pension fund investments, as those millennials get older. It is already beginning to happen in many schemes. In a previous blog, I mentioned the change in investment regulations for local authority pension funds’ social investments. The guidance for the new regulations stated that “some part of the financial return may be forgone in order to generate the social impact”. These investments can now be considered “providing the administering authorities have good reason to think scheme members share the concern for social impact, and there is no risk of significant financial detriment to the fund”.

A recent, excellent paper by bFinance, “ESG Under Scrutiny: Lessons from Manager Selection”, discusses the evolution of ESG investing. This has gone from:

(i) Socially Responsible Investment (SRI) Values alignment (screening), to

(ii) ESG integration (dialogue with companies), to

(iii) Thematic investing (e.g. focus on climate change), and finally to

(iv) Impact investing.

Impact investing, which is at the heart of Resonance’s vision, mission and values, is described by bFinance as “Investing in companies with the intention to generate a measurable and beneficial social or environmental impact alongside a financial return.” They distinguish between ‘Integration’ and ‘Thematic’ investments, which are predominantly financially-driven and ‘Impact’ investments, which place more emphasis on values.

It is when a pension fund decides to allocate to impact investments, that the mission statement of an asset manager becomes critical. It isn’t sufficient just to read that statement on the company’s website. In bFinance’s report, they point out that “Culture, attitude and internal organisational conflicts of interest can outweigh formal processes and practices where ESG matters are concerned. Avoid giving excessive weight to signs of commitment that may be superficial.” This isn’t just a question of ticking boxes.

I would encourage investors to ensure that ESG runs through the veins of any employee that they meet from the firm in question. In a typical beauty parade of shortlisted firms in a manager selection process, trustees only get to hear a brief, fifteen-minute presentation. How can they dig beneath the surface, given such limited air-time? 

Below are some suggested questions:

• How would you describe the vision, mission and values of your company? A model answer would be for an employee to respond without hesitation and with confidence, and for that response to resonate with the investor. It would be interesting to put this question to the most junior person in the room, and scrutinise the faces of their senior colleagues whilst they are answering.
• What specific things have you observed in your colleagues that demonstrates your vision, mission and values being implemented? This was a fascinating discussion at Resonance’s strategy day with staff commenting on the open and respectful culture allowing everyone, from the most senior to the most junior person, to put forward suggestions and ideas on impact investing.
• What positive impact have you, as a business, had on the world (clients, peers, investors or wider industry), that you are personally proud of? This question shows whether impact investment is genuinely embedded into the company’s culture, and whether staff feel passionate about what they do, or whether there is in fact a disconnect between the staff and their firm’s mission statement.

Jack Welch, former Chief Executive and Chairman of General Electric, once said: "Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion."

Next time you are considering investing with a new asset manager, consider whether this comes across for your candidate firm, whether staff convey a genuine sense of the firm’s mission being strongly embedded within their culture. It could well prove to be a deciding factor.