Structuring and Disseminating Responsible Investment Values in Wealth Funds

Campbell Pickford, Helen (2018) Structuring and Disseminating Responsible Investment Values in Wealth Funds. Saïd Business School Working Paper 2018-11.

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Abstract

Adopting Responsible Investment values in wealth funds has not restricted their practices, but has led to innovation. Analysis of innovative management in large wealth funds has shown that they offer examples of the types of mutual business relationship developed by investors with long term horizons compared to those seeking short term profits. The funds have different ownerships (pension funds, Sovereign Wealth Funds (SWFs), and privately owned asset managers), different organisational structures, and different purposes. However, their common goal, to create wealth over the long term, provides an opportunity to study those aspects which contribute to mutually beneficial relationships between investor and company, and what innovations are taking place in the investment sector to redefine these relationships away from short-term profiteering. Aspects of these longer-term relationships have the potential to demonstrate how active management practices over the long term could benefit other investors.
The study includes seven funds: three pension funds, two SWFs, and two private equity funds. They have been chosen as examples of innovation which are actively contributing to best practices in the field of Responsible Investment. The study identifies features of innovative management practices which enable them to profit, in line with their fiduciary duty, while maintaining high standards of responsibility. These funds are not philanthropic, nor aimed primarily at social impact, nor do they have separate CSR or ethical funds; responsible profit-making is at the core of their strategy. This study therefore contributes to the literature on the relationship between ownership models and Environmental, Social and Governance innovations in Responsible Investment.
The funds are compared to show what practices have been widely adopted, and where continuing innovation is driving change in the investment sector. The findings show a wide diversity of investment strategies, from small stakes in a large number of companies, to larger holdings in fewer companies, across multiple sectors and regions. Some negative screen or divest; others actively seek companies with sustainable agendas. As shareholders, they typically vote on all shares; however, some build partnerships with companies, divulge their voting strategies, and build alliances with other owners; others allow company managers greater autonomy. The funds have a variety of internal governance structures, with different approaches to appointment, tenure and including employee representatives. Although all espouse ESG principles in investee companies, few demonstrate high levels of diversity themselves. Changes in the way CEO compensation is negotiated reflect changing values in the sector.
A key finding is that fund managers perceive active management as crucial to their ability to invest responsibly, with long-term horizons. Some build active management relationships with investee companies entirely in-house; others value external managers for diversified knowledge and contacts. Where external managers are employed, they are often selected for their alignment with the investor fund’s values. However, ‘active’ engagement with companies is not always synonymous with ‘direct’; some funds claim active management of shares owned through external managers.
Many of these funds are eager to influence values and policy. They are producers of knowledge and ‘culture’, both as internal working strategy and to influence others, including the governance of businesses they invest in. Despite their active contributions to national and international regulations, there is little consensus on strategies for investment, perhaps as the practices of long term investment are still being rediscovered. In the broader field of Responsible Investment, these funds therefore offer an opportunity to consider the connections between long-term share ownership, management innovation, and the drive to influence the sector towards Responsible Investment practices.

Item Type: Oxford Saïd Research Paper
Date Deposited: 13 Apr 2018 13:32
Last Modified: 13 Apr 2018 13:32
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6806

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