"Business Ethics is the new Black": Q&A with UCA Funds Management's James Cook

Following ten years with ANZ, James Cook has joined UCA Funds Management, Australia's longest running ethical investment manager, as its director of investments. Feeling very much at home in his new role - which he names as the highlight of his career - James shares his plans and goals for the coming year. He also offers his predictions for the future of ethical investing, his most memorable investments to date, and a little about his "blissful and fortunate" upbringing.

JAMES COOK

Following ten years with ANZ, James Cook has joined UCA Funds Management, Australia's longest running ethical investment manager, as its director of investments. Feeling very much at home in his new role - which he names as the highlight of his career - James shares his plans and goals for the coming year. He also offers his predictions for the future of ethical investing, his most memorable investments to date, and a little about his "blissful and fortunate" upbringing.

What are you most looking forward about your new role with UCA Funds Management?

Working with the team to build on their solid track record and continue to develop UCA Funds Management's role as a leader in the field of ethical investment. We enjoy a proven team with very supportive stakeholders and the capacity to grow. As Australia's longest running ethical investment manager, I believe it is time we grew our funds management capability amongst the wider investment community of charities and not-for-profits. That would be really satisfying.

...and what are your goals for this role over the next 12 months?

My chief goals are to determine how I best complement the existing approach and take it out into the broader community. I also need to forge some progressive thinking on how we manage with lower interest rates. As longer dated maturities run-off, running yield is constantly falling − presenting increasing constraints for the typical conservatively investor. Budgets rarely shrink, however investment income has been for a number of years now. Delivering a reasonable sustainable income stream has to be a major goal out of investment management.

Your website states that you don't take an "eeny-meeny-miny-mo approach" to your investment process. Can you tell us a little more about the firm's research process when looking for appropriate investment options?

An imperative first step is to ensure any investment passes our ethical screen as UCA Funds Management has been a signatory of the United Nations Principles for Responsible Investment since 2007. We analyse companies for both negative and positive attributes on the notion that sound ethical practices generate operations and superior returns and vice-versa, not surprisingly. We also exercise behaviours such as constructive shareholder engagement, monitoring our portfolio carbon footprint, and actively exercising our proxy vote.

As a consequence, our current excluded list includes emissions-intensive companies that may cause unacceptable environmental damage. This currently includes index heavyweights BHP, RIO and S32. All very deliberate omissions, despite their relatively high index weighting. Of the companies we carry in the portfolio, generally speaking our initial target weight is 2.7 per cent outside the Top 20. Given the largest weighting in the ex Top 20 is around 1 per cent, we do exercise a fair degree of conviction.

Investment decisions are then a product of our top down approach and fairly rigorous analysis of the underlying securities we are considering for inclusion in our portfolio. Key fundamental metrics such as ROE, ROIC Vs Cost of Capital and Balance Sheet strength are weighted heavily in the decision making process. We invest across fairly conventional listed securities in domestic and international equities, and our cash and fixed income portfolios also adopt considered, but material, decisions. Embracing community impact loans and mortgages represent considered risk aware decision-making that calls upon careful analysis of the risks - far removed from any haphazard approach.

What predictions do you hold for the ethical investment space over the next 5-10 years?

It is increasingly likely to be recognised as an imperative in determining Strategic Asset Allocation, and to align the fund manager with their investors' wants and objectives.

Business ethics is the new black, again, and then again - and will yield ever increasing positive results - evident when you look at the long-term performance of ethically positive companies such as Invocare or CSL against those who consistently fail to meet our interpretation of high ethical standards, such as companies in gambling or coal seam gas for instance.

What's the most memorable investment that you've made (for either positive or negative reasons)?

There have been many memorable investments, including some personal investments that attracted a rather different risk budget to the one I would employ professionally. Where these have been isolated as relatively small high-risk plays, the one stock may have generated many great memories and tears as well ... best I do not disclose the names.

Professionally speaking, the more favourable stock outcome recently has been to go heavily overweight Challenger Financial Group. The company's strategy represents the hallmarks of a well-executed strategy after recognising broad long-term trends (growth of annuity based income streams from superannuation savings) with increasingly difficult barriers to entry across an Industry that has compulsory growth. Over the last five years the stock has consistently grown from $3 to its current price of around $12.50 with its distribution and strategic partnerships ever growing.

What was the greatest lesson that you took away from your ten years with ANZ?

That big is not always best. With all the issues confronting the banking industry today, I believe many of them originate from the fact that the banks have become behemoths, too large for management to adequately keep a handle on all aspects. This has become clearly evident where they have tried to combine Wealth within their core banking operations.

However, I would also nominate another key lesson which is basically that most people, regardless of where they work, want to do the right thing and be good citizens of the world.

What has been a highlight of your career so far?

Joining UCA Funds Management - without a doubt. It feels as though I have come home. I am constantly impressed by the dedication and friendliness of the people around the place. I love the way our General Secretary signs off on communiques... 'grace and peace'. You wouldn't find that circulating amongst many corporates today.

What was your very first job?

Outside the industry, probably peeling potatoes out the back of the local fish 'n' chip shop which proved a front for the local SP Bookie - sure learnt some lessons there! Professionally, I started my career as a trainee graduate with an old school Stockbroking firm that was a partnership in the latter half of the 1980s. Again, a great space for learning a lot about the industry and more importantly, learning a lot about people and human behaviour. Invaluable experience.

Where did you grow up and what was it like?

I spent my primary school years in Tasmania, roaming free through bushland feeling very free and secure. I then spent my formative teenage years on the Mornington Peninsula where I fostered a deep love for the ocean, first through water based activities on Port Phillip Bay before I soon developed my lifelong passion for surfing. Something I still cherish today and feel very privileged to have enjoyed. A blissful and fortunate childhood really.

If you weren't in finance, what would you be doing?

Probably be running an eco-tourist lodge conducting wild coast walking tours. Would enable me to combine my passion for sustainable living with a celebration of Mother Nature in her raw and purest form.