ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) FUNDS IN ASEAN

Malaysia 2018 | FINANCE | VIP INTERVIEW

TBY talks to Shan Kamahl Mohammad, CEO of VCAP Asset Managers, on sustainable investment, targeting ASEAN, and plans for the short term.

What can you tell us about your investment portfolio, and what rationale do you follow for your environmental, social, and governance (ESG) choices?

VCAP Asset Management (VCAM) was a pioneer in launching ESG funds in Malaysia and likely ASEAN when it launched the Malaysian ESG Opportunity Fund in August 2015. In February 2017, VCAM launched the ASEAN-5 ESG Opportunity Fund. Both funds are equity-only funds investing in listed companies. We have not launched any wholesale ESG fixed income funds; however, that is something that we seek to do in the future. Internally, we have our own ESG framework that we have assimilated into our investment process when we look at our potential investments for our clients, be they through wholesale funds or private mandates. Even though we have our own internal ESG capabilities, as we are still a relatively new company with short public track record in the ESG space, we decided to use the FTSE4Good indices to provide increased visibility and confidence to our commitment within the ESG space. The constituent list that makes up the FTSE4Good Bursa Malaysia Index and the FTSE4Good ASEAN Index provides investors with greater confidence that the ESG assessment is done by a reputable source. We can add further value to the FTSE4Good ESG process as we also actively engage with constituent companies to unearth more info that is beneficial to our overall assessment of the ESG factors of the company. At the same time, our in-house research and investment team are fundamental specialists and look at the various financials of our investee companies to assess the value of the companies at that particular time. VCAM is a medium- to long-term investor; at the same time, we acknowledge that with volatile market conditions, short-term positions can provide attractive alpha to our clients' portfolios. We do trade in and out of some of our core investment calls. There is a three to eight-year view and possibly a one to six-month view on the same security. We present ourselves as fundamental investors and believe we have to engage directly with the companies we invest or might invest in—I personally visit around 50 companies a year. Differentiating ourselves, we do not stray from our value system as we believe in investing in excellent management, good corporate governance and sustainable business models which include gender diversity and balanced board representation. We believe those companies will be around for a very long time. The simple premise of us looking at ESG is that we want to invest in a business that will not default or disappear. We expect all our investee companies to still be around in 50 years' time and beyond.

How has ESG investing advanced within ASEAN?

ASEAN listed and non-listed companies are still at an early stage of using ESG factors as part of their reporting efforts and also the way they run their business. Our engagement process and framework will help guide companies on the things to work on that can boost their ESG factor ratings. We give our views and reasons why we feel that certain suggestions are important. Then, we wait and also engage again with the companies to see if our suggestions are taken into consideration. If they are not, we check with the companies to understand why the recommendations were not taken into account and reflect it within our own framework and scoring system. This then translates to investment decisions that use our internal ESG ratings as a key indicator of the long-term potential of each company. Our investment process looks at ESG regardless of the kind of mandate we run. Our framework requires us to engage companies systematically and hopefully in a non-instructive and non-intrusive manner. We are honest with our views and make our general ESG expectations clear to the companies. Each company has its own views on specific ESG factors and deserves to be heard. However, ultimately VCAM has to decide on whether each company's value system and ESG efforts warrants new or continued investment into the respective companies. We are active investors and hope that we can be agents of change via the way we allocate investments. ESG is an important part of our investment process and complements our “bottoms-up," fundamental, kicking-the-tires approach to investing.

You have expressed your interest to bring in more foreign funds into Malaysia to manage investors, family offices, and institutions from here. Could you comment on your strategy here?

VCAM specializes in understanding ASEAN markets well. Our investing efforts are ASEAN focused and our engagement is ASEAN skewed. By understanding the ASEAN story best, we are able to find the best investments in ASEAN for our clients. For potential clients say in Japan, Europe, or even the Americas, it can be tough to find a “localized" manager that they can trust, has the appropriate processes in place, has sound financial footing, and is capable of providing attractive above-average active sustainable returns on their investments. We are such a manager and because of our focused approach to investing and being based in Kuala Lumpur, we should be a natural choice to investors, especially family offices and HNW individuals outside of ASEAN who want exposure to the region. Over the next two years, we seek to launch our ASEAN strategies, be it country, region, theme, asset class, or strategy-specific via UCITS or other globally acceptable investment structures.

What is your vision for VCAP in the next three to four years?

We aspire to be the ASEAN fund manager of choice for investors globally. Our primary ambition is to build a strong track record showing that despite turbulent cycles and increased global volatility, we are able to provide steady and sustainable above-average returns to our clients when they invest in ASEAN. A great deal of institutional money requires an official three-year track record. We have in fact taken a step forward and got ourselves standardized globally using GIPS in terms of reporting by end 2017. The Group has a 12-13-year track record of managing equity investments; however, as a company that takes money from external parties, we are only three years old. We need to keep our heads down and focus to give excellent returns and eventually investors will come to us. We are downside conscious and ensure that many of our strategies also focus on portfolio downside risk mitigation. Being tagged as an ESG investor is great; however, ESG has become part of our investment process regardless of whether a company wants an ESG mandate. We hope to launch a few more targeted products and hopefully have strategic tie-ups with like-minded asset management companies in Europe, the Americas, Hong Kong, and even other Asian countries as our focus is only sustainable ASEAN investing but our clients may want global sustainable solutions. Furthermore, we are implementing greater visibility of VCAM to the global investing public that wants sustainable investments in ASEAN. At the same time, building a target -appropriate distribution network that can cover regional and eventually global clients is also high on my priority list.