Time to address the social in 'ESG': Q&A with First Sentier's Hendrie Koster March 2020

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First Sentier Investors (FSI) has just appointed Hendrie Koster as head of investment product research. He speaks to IndustryMoves about the challenges Covid-19 presents and shares some early thoughts on potential investment opportunities that might eventuate. Investment solutions that directly address the social part of environmental, social and governance (ESG) investing, given the lasting impact the pandemic is expected to have, will be important not just for the investment industry, but for society as a whole.

What are you looking forward to in the role?

Following the recent change to its corporate ownership structure, FSI is going through an exciting phase in its growth and development. This creates many opportunities for the business to develop and evolve its processes, operational infrastructure and overall investment product offering. It’s exciting to join the team as it works its way through these challenges.

FSI has a broad range of well-established investment capabilities across geographies and asset classes. I’m really looking forward to working with all of the investment teams in Australia and abroad to help identify attractive opportunities to connect these capabilities with different investors around the world, thereby helping them achieve their varying investment goals.

What do you think will be your biggest challenge in your new role?

We are all going through a very challenging period at the moment and time will tell what the lasting impact of the COVID-19 pandemic will be on our day-to-day lives.

My new role is global in nature and requires regular collaboration with a wide range of stakeholders across FSI’s global business and externally in the market. Establishing and maintaining these relationships is certainly easier to do in person, but technology has come a long way to help bridge the gap, and to overcome the tyranny of distance as a result of being based in Australia.

Are all product issuers going to be on hold are or there still opportunities to be developed in current uncertain markets?

As the saying goes: “Never let a good crisis go to waste!” Market turmoil has a way to shine a light on investment strategies and approaches that are not fit-for-purpose. Investor behaviour and portfolio construction approaches will likely be influenced as a result of the breakdown in the relationships between asset classes, and the heightened liquidity constraints that the market is witnessing at the moment.

FSI’s focus on investing for the long term in high quality assets and its history of stewardship puts it in a good position to weather the current market volatility. However, market turmoil also tends to kick up new opportunities for investors to benefit from. For example, in the wake of the Global Financial Crisis we saw the rise of factor investing and SmartBeta investment approaches. The GFC also spawned a broad range of diversified and specialised credit and private debt investment solutions that remain in high demand. We don’t yet know exactly what the opportunities will be this time, but in my new role I’m looking forward to playing a part in developing them.

What kind of product opportunities do you think you’ll be able to identify in current markets?

Time will tell what the ultimate impact of the current crisis will be. Each crisis is different and leaves a lasting impact in different ways, but what’s telling about the current pandemic is that it is truly global in nature and directly impacts each person out there. It does not differentiate between developed and emerging markets, the rich or the poor.

Some early thoughts in terms of potential investment opportunities:

  • This is the time for active management to shine: Actively-managed strategies are well placed to adjust and mitigate the risk exposures in their portfolios and to gain exposure to those industries that will weather the storm and recover more quickly when market conditions improve.

  • Responsible investment: The current crisis has had a heightened societal impact on populations around the world. This potentially creates opportunities for investment solutions that directly aim to address the ‘Social’ in ESG.

  • Risk diversification: Strategies that diversify risk, offer liquidity or provide downside protection will likely be in high demand over the coming years. Multi-asset and benchmark-agnostic investment solutions are well placed to address this need.

You’ve had roles in product and strategy for a number of years now, how have the products coming to market developed over the past decade?

The newer generation of investment products have had a stronger customer-centric design underpinning, compared to older legacy products. Enhanced regulations are also playing their part. The asset management industry is evolving from being investment product pushers to being investment solution providers.

Where asset managers are further along this journey, much more consideration is given to the needs and requirements of investors in a total portfolio context, and therefore the role that a specific investment product plays in the overall portfolio.

One specific example in Australia is the integration of ESG consideration in the product’s investment process. As investors have evolved their investment beliefs and philosophies, this has become a core component of any new generation strategy, no matter which asset class. It is now a core requirement of investors, rather than a niche nice-to-have. FSI has long been a market leader in this area and I’m excited to join them at this time of evolution.

If you could tell investors one thing right now what would it be?

If you have a medium to long term time horizon, stay the course! While it might be tempting to de-risk portfolios in light of the current market conditions, a well-diversified portfolio will help to weather the storm to a certain extent. In addition, retaining exposure to growth-oriented investments will stand investors in good stead once global markets normalise again. Don’t try to time the market, as missing out on the bounce could be costly for investors in the long run.

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