Asset owners, sitting atop the investment chain with long-term investment horizons, are ideally placed to drive responsible investment throughout the investment cycle.
This final chapter offers practical ideas for bringing ESG matters raised during the manager selection process together in order to facilitate ultimate decision making.
This chapter focuses on an investment manager’s culture, investment approach and objectives, investment policy, time horizon, asset classes and governance.
This chapter focuses on ESG in investment decision making and portfolio construction, as well as on the risk and return framework.
This chapter looks at how asset owners can be effective stewards of their assets and, if such functions are outsourced, determine how an investment manager deals with stewardship and active ownership issues.
The selection process should consider the ongoing reporting from the manager to the asset owner and satisfy the latter’s internal investment-related information requirements, as well as be able to accomodate their own reporting to stakeholders.
ESG factors are an important dimension of investment expectations and should be considered a part of an asset owner’s overall expectations for their fund’s financial performance.
To integrate ESG considerations into their externally managed assets, asset owners (or their investment consultants) will assess external managers’ integration practices.
Asset owners should decide which requirements/questions should be included in RFPs and what information should be requested in questionnaires and during meetings with candidate managers.
Selecting an investment manager that can act in accordance with an asset owner’s investment preferences requires thorough due diligence of the manager’s investment approach and performance, investment process, stock selection and portfolio construction decisions.
After a manager is selected, an asset owner may negotiate and agree on a number of ESG-related terms and conditions.
Once the most eligible asset manager is selected, asset owners can include ESG terms in the investment management agreement (IMA) to formalise their expectations.
How to identify options for incorporating responsible investment considerations into fund terms when committing to a private equity fund.
To review investment performance and managers’ integration practices, asset owners: organise periodic monitoring meetings with investment managers; ask them to complete questionnaires/regularly report; and/or use methods such as peer analysis, internal scoring systems and portfolio analytic tools.
Post-investment, an LP should focus on monitoring how a GP integrates ESG issues into its investment decisions and ownership activities, and engaging with a GP on specific areas for improvement or concern.