Growing an impact investing fund in the COVID era June 2020
Lucy Steed's impact investing fund, Melior Investment Management, has been growing steadily for the last two years. At the height of lockdown, she put out the call for a head of distribution to help take it to the next step.
Steed shares her experiences growing the fund in these odd times, how her experiences at big firms like AMP and BT have shaped her, and what she would change if she were to do it all over again.
- What have been your experiences, ramping up a fund during the bushfires and now coronavirus-depressed economy?
We have noticed an increasing focus from investors on the importance of considering social and environmental factors in investment decisions, not only for risk mitigation but also from an opportunities perspective.
Crises have been well-documented catalysts for change historically and have often led to meaningful scientific and technological advances, as well as social improvements. Investors are beginning to understand that you don’t need to sacrifice returns to invest in companies that are “doing good”. Our fund for instance over the last 6 months has outperformed the ASX300 by 8.9%. (As at 31 May 2020).
- Why did you decide to focus on impact investing?
About 3 1/2 years ago I had a health scare that was a catalyst for change for me. I resigned from my job and took time off to spend time with my family and decide what I really wanted to do. I heard about impact investing and the ability to deliver positive social and environmental impact and competitive returns resonated strongly with me. It was an opportunity to connect head to heart which really energised me to go out on my own and look for opportunities to grow the space.
The industry was fairly embryonic then but is really starting to gain traction now. RIAA released their Benchmarking Impact Report last week and noted that the Australian impact investing industry has tripled over the last 2 years. It also noted that respondents were looking to increase their allocation towards impact investments more than fivefold over the next five years so there is a significant growth trajectory in the impact space.
- You’re in the process of searching for a head of distribution. With the handshake culture something of a taboo right now, what kind of skills are you looking for?
Having worked from home for over 12 weeks now, we’ve been surprised at how seamless operationally the transition has been and how quickly everyone has adapted. Whilst handshakes are still out, we are regularly having good conversations with potential investors via zoom but look forward to being able to catch up face-to-face.
In terms of skills we’re looking for, we want someone with significant investment management distribution experience who has the passion and drive to take impact investing mainstream in public equities. They need to have a strong interest in Impact & ESG, be a self-starter, be persistent and have the ability to effectively articulate our approach. We are a values-driven organisation so it is important that the individual is an active collaborator that seeks diversity, is inclusive and is always striving to improve.
- We’ve seen a significant reduction in emissions due to lockdown and depressed economy. Do you think impact investing can encourage this trend to continue?
We do think that Impact Investing can encourage the trend to lower emissions. Scale investment in renewables can drive the electrification of the economy, lower emissions, create jobs, and stimulate economic growth.
Our portfolio currently has a carbon intensity 53% below the ASX300 and we engage regularly with listed companies on improving their environmental footprint and targets. Our proprietary carbon calculator estimates that the ASX300 represents ~50% of emissions in Australia, so listed companies have a key role to play. Based on current figures, there is significant room for improvement with only 25% of ASX300 companies having emissions targets and only 9% having net zero-emission targets.
- You have significant experience with some of the biggest players in the industry, BT, AMP, Accenture. What has the transition been like to running your own organisation?
I feel lucky to have had the opportunity to work with great people at big institutions in both Sydney, London and New York and to benefit from the training and large projects that you are exposed to in these organisations.
For me it was the right time to leverage this experience and be bold and brave in beginning something new that I was really passionate about. I co-founded Melior with Tim King who has been at the forefront of ESG investing for over a decade. I really enjoy working with Tim and our team who we hand-picked together to create a dedicated team of impact specialists. I like that we are “one team, one dream” (as our portfolio manager William Wu would say) and that we all share a common goal to be part of the change we want to see in the world.
- If you had to do it all over again, what would you have changed about the creation of Melior?
The great thing about starting your own company is the ability to create something exactly the way you want it to be. We spent over a year concept testing, backtesting and building our philosophy and process to ensure that we delivered a high-integrity offering that we believed could deliver competitive returns. I wouldn’t change anything about Melior at this point but I would change my expectations on how long it takes to get a business like this up and running successfully.
Patience and persistence are key.