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Indexing, ESG and Digitization Drive Growth in Customized Investment Solutions

ask-g36d057f11_1920 — Pixabay CC0 Public Domain. La indexación, la ESG y la digitalización impulsan el crecimiento de las soluciones de inversión personalizadas

According to new research from quant technologies provider SigTech, 70% of pension funds and other institutional investors believe demand for custom portfolio solutions will increase strongly. The disruptive market forces of ESG, indexing and digitization are driving this increased demand for customization.

Customized portfolio solutions are bespoke investment strategies that are developed to meet the specific needs of investors. Two thirds of those surveyed (67%) believe it will become one of the biggest growth areas in asset management and is one of the industry’s most exciting developments.

“One of the key reasons for growth in this market is that 75% of institutional investors said they are becoming increasingly sophisticated in their individual ESG requirements. In addition, investors are finding it difficult to find off-the-shelf products offered by fund managers that are fully aligned with their needs”, explained the authors of the research.

Another interesting conclusion is that 41% of participants believed fixed income was the asset class with the biggest need for customization, followed by 27% who cited commodities, 18% said equities and 14% mentioned hedge funds.

When it comes to implementing their individual ESG policies, the study found that institutional investors use a combination of solutions. In this sense, 65% use off-the-shelf products (i.e. without any customization), 60% use customized portfolio solutions with external partners, and 52% said they develop these internally.

“Investing does not have to be just about searching for an existing product that offers the best possible fit to the investor’s needs. It is about creating a product that 100% corresponds to the investor’s requirements. Our research shows that 69% of institutional investors agree with this view”, pointed out Daniel Leveau, who heads SigTech’s strategic initiatives for institutional investors.

Schroders Buys 75% of Greencoat Capital, Investment Manager Specializing on Renewable Infrastructures

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windmill-ge4ef40386_1920 — Pixabay CC0 Public Domain. Schroders se hace con el 75% de Greencoat Capital, gestora especializada en infraestructuras renovables en Europa

Schroders has announced that it has reached an agreement to acquire a 75% shareholding in Greencoat Capital Holdings Limited (Greencoat) for an initial consideration of 358 million pounds (471 million dollars). Greencoat is one of Europe’s largest renewable infrastructure managers, with 6.7 billion pounds (8.93 billion dollars) of assets under management at 30 November 2021.

In a press release, the asset manager has pointed out that Greencoat “pioneered large-scale renewable energy infrastructure investing in listed and private formats”, delivering compound AUM growth of over 48% per annum over the last four years to 31 March 2021. Over the past 12 months it has achieved net new commitments for private funds and equity raises for listed funds of 1.6 billion pounds (2.13 billion dollars).

After this agreement, both firms have an ambition to be a global leader in this “fast-growing and important” investment sector.

In Schroders’ view, Greencoat operates at the intersection of two significant growth opportunities. The first one is the global transition to net zero: the US and European markets for renewable energy assets are forecast to grow by more than 1 trillion dollars to 2030. The second is the “significant and accelerating” institutional client demand for environmentally positive products in order to meet their own sustainability commitments.

As part of Schroders, Greencoat’s growth and its offering to clients will be significantly enhanced, benefitting from Schroders’ distribution reach, sustainability capabilities, management experience and brand. Greencoat will become part of Schroders Capital, Schroders’ private markets division and be known as Schroders Greencoat.

Strategic rationale

Schroders’ believes that the transaction is aligned with its strategy to build a comprehensive private assets platform and enhance its leadership position in sustainability. In its view, providing private capital for the energy transition required to achieve a net zero future will become increasingly important as governments around the world look to accelerate towards this goal: “This is an area where we can support one of the most significant transformations required in economies worldwide to mitigate climate change. In addition, there is strong investor demand for such long-duration assets providing long-term secure income streams”.

Peter Harrison, Group Chief Executive of Schroders, highlighted that Greencoat is “a market-leading, high growth business, with an outstanding management team”, which provides access to a large and fast-growing market in high demand among their clients.

“Its culture is an excellent fit with ours and its focus aligns very closely to our strategy, continuing our approach of adding capabilities in the most attractive growth segments we can provide to our clients. We have demonstrated our ability to integrate acquisitions successfully, to generate growth and create significant value for our shareholders. We are confident that we will be able to leverage the strengths of both firms while preserving Greencoat’s differentiated position in the market”, he added.

Meanwhile, Richard Nourse, who founded Greencoat in 2009, claimed to be “delighted” to have found a partner in Schroders who sees “the potential” of their business and believes deeply in their mission to build a global leader in renewables investing. “We are extremely proud of what the brilliant team at Greencoat has together achieved, creating a market-leading renewables asset management firm in the UK and Ireland, a strong platform in Europe and an important expansion into the US. Combining this team with Schroders’ global distribution network and expertise will enable clients to capitalise on the unequalled opportunity that our sector represents – a trillion dollar investable universe – and the chance to meaningfully support the global transition to net zero”, he concluded.

About Greencoat

Established in 2009, Greencoat is a specialist investment manager focusing on renewable energy infrastructure investing, including wind, solar, bioenergy and heat. Greencoat operates nearly 200 power generation assets across the UK, Europe and the US, with an aggregate net generation capacity of over 3 gigawatts. Its investor mandates typically comprise permanent or 25-year capital, reflecting the longevity of the assets in which it invests. It manages the leading listed renewable infrastructure investment companies in sterling (Greencoat UK Wind PLC) and euros (Greencoat Renewables PLC) and has some of the UK’s leading pension funds amongst its fast growing £2.9 billion private market business.

The firm has a strong, experienced team who have contributed to its success over many years and which is known for the depth and quality of its operational asset management expertise. It is led by its four founders Laurence Fumagalli, Bertrand Gautier, Stephen Lilley and Richard Nourse.

Vontobel Acquires UBS’s Financial Advisers Business Serving US Clients

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city-g0de4564bf_1920 — Pixabay CC0 Public Domain. Pexels

Vontobel has signed an agreement with UBS to buy its subsidiary UBS Swiss Financial Advisers (SFA), based in Zurich. In a press release, the firm has announced that with this acquisition, it expects to further strengthen its platform providing clients with a global investment approach and geographic diversification.

Vontobel will combine SFA and VSWA (Vontobel Swiss Wealth Advisors), its existing business serving North American Wealth Management clients. Preparations for this will start after the closing of the transaction, which is expected for the third quarter of 2022.

“This transaction is reflective of our confidence in the US market and our ongoing strategic growth efforts in the region. This is a major step toward making Vontobel a global name that serves sophisticated clients around the world and builds toward our goal of increasing US client revenue and overall assets under management”, said Georg Schubiger, Global Head Wealth Management Vontobel and Chairman VSWA.

Together with SFA’s CHF 7.2 billion (7.82 billion dollars) in assets under management as of September 30, 2021, Vontobel, through its SEC licensed entities, is expected to become the largest Swiss-domiciled wealth manager for US clients seeking an account in Switzerland for diversification purposes. The combined pro forma assets under management will more than double to over CHF 10 billion (10.8 billion dollars).

Following the transaction, UBS will continue to refer its clients to SFA, an SEC-registered investment advisor and FINMA-licensed securities firm, which offers US clients tailored investment solutions in a Swiss-based environment.

Tom Naratil, Co-President UBS Global Wealth Management and President UBS Americas, claimed to be “pleased” to partner with Vontobel, “a leading global investment firm that’s client focused and committed to excellence”. In his view, this acquisition not only ensures UBS’s US clients continue to have access to a Swiss-based money management firm, but it also simplifies their business structure and enables them to focus on core activities with scale in line with their “strategic priorities.”

Vontobel has long been present in the US as an asset manager, and for over a decade has been growing its wealth management business with teams in New York, Geneva and Zurich. In 2019, Vontobel acquired Lombard Odier’s US-based client portfolio and plans to open a new office in Miami.

The transaction, which is subject to regulatory approvals, will be fully funded with cash from Vontobel’s balance sheet, covered by its robust CET1 and Tier 1 capital ratios. Additional financial details of the transaction were not disclosed.

Citi Sells its Broker-Dealer and Investment Advisory Firms to Insigneo

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Captura de Pantalla 2021-12-16 a la(s) 12 — . Pexels

Citi announced that it has entered into a definitive agreement to sell its broker-dealer and its investment advisory business to Insigneo.

“The sale of CIFS (Citi International Financial Services), a Puerto Rico-based broker-dealer, and Citi Asesores, an investment advisory firm in Uruguay’s free-trade zone, is subject to regulatory approvals. Citi will maintain all existing bank deposit relationships with wealth clients moving to Insigneo”, said the press release.

In addition, both firms have agreed to explore for Citi to offer banking services to Insigneo’s existing clients. “Citi’s strong presence in Puerto Rico and Uruguay, serving institutional clients, remains unchanged”, they added.

Negotiations, which took over 15 months, were finally completed, and regulatory approvals could be confirmed by the second quarter of 2022. According to industry sources, the sale involves 4.5 billion dollars of AUM.

“This sale allows us to simplify our wealth business. At the same time, we saw an opportunity to continue to provide our clients with best-in-class retail banking while they seamlessly continue to work locally with their investment professionals, who upon close will move to Insigneo, which offers a broad spectrum of investment products and wealth management capabilities”, said Scott Schroeder, Head of U.S. International Personal Bank at Citi.

Raúl Henríquez, Chairman and CEO of Insigneo, commented that they are “extremely happy” to incorporate CIFS and Citi Asesores into Insigneo Financial Group’s growing platform. “And we are pleased to continue our relationship with Citi as a banking services provider for our new clients”, he added.

Maintaining Dividend Sustainability in a Recovering World

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christmas-gedf1fb064_1920 — Pixabay CC0 Public Domain. 1

Company dividends have now largely recovered from the ravages of the pandemic, with payouts across European companies likely to return to pre-pandemic levels by mid-2022. However, the strongest recovery in dividends has been seen among more challenging sectors from an environmental point of view. Mining companies for example have declared bumper payouts on the back of rising commodity prices, and oil and gas companies have been able to raise dividends as energy prices have recovered.

Against this backdrop, investors need to find a path to ensure that their equity income strategy isn’t incompatible with an increasing focus on ESG criteria, while retaining sufficient sector diversity for prudent portfolio management. For NN Investment Partners (NN IP), there are three key ways to ensure long-term dividend sustainability:

Engage rather than exclude

NN IP’s preferred approach is to engage with companies to bring about change, rather than exclude. Nicolas Simar, Senior Portfolio Manager, European High Dividend, says: “We only get to where we want to be if we help companies to transition. Applying a blanket exclusion on specific sub-sectors doesn’t necessarily help, particularly if those assets are then sold to investors with a lower sensitivity to ESG factors. It is much better to act as responsible shareholders and engage with companies to help them move in the right direction. As investors we also need to build a realistic appraisal of how the path to net zero impacts their cashflows and the potential effect on dividends.”

Adjust financial metrics for specific ESG criteria

Mark Belsey, Senior Investment Analyst in the European Equity team, reveals that they look at the ESG risks and opportunities for individual companies and incorporate them into their valuation analysis: “There are elements that can be readily quantified. For these, we can adjust our financial forecasts and our discounted cash flow estimates. For harder to quantify factors, we integrate qualitative analysis into our investment case. We can then apply discounts or premiums to costs of capital, or valuation multiples, relative to their peer group.”

This evaluation can also run alongside engagement efforts. If an engagement works, the discount applied to a poorly performing company may be removed. If it does not, the discount would continue to be applied.

Quantify the cost of achieving net zero

Robert Davis, Senior Portfolio Manager in the European equity team continues: “Our analysts take a view of the operational and capital expense needed to bring companies towards a net zero target. Once we have built that into the forecasts, we may have a quite different projection of cash flows for that company than market consensus. This is important for dividend payouts: a company that needs to invest hundreds of millions of pounds in a carbon neutral project may see impairments to its cash flows.”

However, in the longer term, this investment may improve a company’s financial position. It may see an attractive return on its investment because it no longer has to pay for carbon credits, or they can charge a premium for their product because it is sustainably produced.

Conclusion

For the dividend investor, Continental Europe has a broad selection of income-generative companies across multiple sectors. It has notably less concentration in cyclical sectors than, for example, the UK market. However, NN IP points out that it can still be difficult to find companies with a high and growing income that score well on ESG criteria.

With the right process in place, these are compatible goals: by picking the right names in each sector, it is possible to build an outperforming portfolio that generates income but also achieves a lower carbon intensity than the benchmark.

UBS AM Appoints Lucy Thomas as New Head of Sustainable Investing

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Lucy-Thomas-580x358 — Foto cedidaLucy Thomas, nueva responsable de Inversión Sostenible de UBS AM.. UBS AM ficha a Lucy Thomas como nueva responsable de Inversión Sostenible

UBS Asset Management (UBS AM) has announced the appointment of Lucy Thomas as Head of Sustainable Investing. Based in Zurich, she will be responsible for leading the delivery of the sustainability and impact strategy; and will report to Barry Gill, Head of Investments.

“As a leading global asset manager, we have a critical role to play, both in providing our clients with the investing solutions they need to meet their sustainability goals and helping to shape the future of the industry. During her 20-year career, Lucy has worked as an asset owner, asset manager, and asset advisor and brings extensive experience working with clients and leading the integration of sustainability factors into the investment process globally”, said Gill.

Thomas has 20 years of experience in the industry and joins UBS AM from TCorp, the financial markets partner of the New South Wales government in Australia, where she was Head of Investment Stewardship. Prior to that, she was Global Head of Sustainable Investment at Willis Towers Watson (2014-2018). She started her career as an analyst on the graduate program at Morgan Stanley.

Meanwhile, the new Head of Sustainability Investing claimed to be “delighted” to be joining UBS AM, a team with “a leading combination” of culture, capabilities and commitment to sustainability. “We are at an inflection point in our industry where creating value for clients, society and the planet has never been more crucial”, she concluded.

Infrastructure for Smart Portfolios

| For Constanza Ramos | 0 Comentarios

Smart cities are no longer a topic of the future. Across the world, industries from infrastructure, to resource management to transportation to technology are mobilizing to make them a reality. Omar Moufti, BlackRock’s Thematic Investment Specialist for EMEA, explains the investment opportunities that may arise from this urban transformation.

Urban future
In 1972, world leaders met at the United Nations Conference on the Human Environment in Sweden, where they defined actions that would ultimately lay the foundation for companies and global organizations to join the efforts to combat climate change. In later years, the United Nations Sustainable Development Goals (SDGs) set key targets to guide international efforts.

This year, the United Nations Climate Change Conference (COP26) continued the conversation to meet sustainability goals in the short term. Cities play a central role in the collective effort to meet these goals, as they are directly or indirectly significant contributors of carbon emissions and pollutants. This transformation of cities, aside from changing the urban landscape, will also offer the opportunity to incorporate exposure to the industries involved in this process to investors’ portfolios.

Over the course of this decade there will be one billion new inhabitants in highly urbanized areas. Of these, 90 percent will be absorbed by emerging markets⁵. This means that more than 900 million people will move to cities in the coming years. For example, Mexico is expected to grow from 384 cities today to over 900 by 2030, according to UN-Habitat.

Smart cities
The UN sees cities with smart infrastructure as a sustainable path to urbanization, and smart cities along with smart urban management models revolutionizing current infrastructure (5G, the internet of things (loT), etc.) have the potential to reduce environmental impact while improving the quality of life of their inhabitants.

And the creation of smart cities is getting a lot of attention from policymakers, such as President Biden as well as the European Commission allocating significant budget to infrastructure to boost GDP. “With the pandemic, many municipalities and federal governments have had to accelerate the modernization of their offerings. Information sharing has greatly improved. Emergency response teams have been modernized,” explains Omar Moufti, BlackRock’s Thematic Investment Specialist for EMEA.

With the weight of global governments and organizations behind it, the development of the infrastructure sector has the potential to generate investments that foster economic growth. Opportunities abound – From equipment manufacturers and service providers improving resource efficiency, to real estate development and renovation.

Future urban growth opportunities also extend to software developers and new technology solutions. “Undoubtedly, 5G and IoT are key to increasing machine-to-machine communication and real-time data updates, which are already part of today’s reality and will consolidate as a core element of smart cities,” adds Moufti.

Investment strategy
Investing in the transformation of urban spaces and infrastructure offers investment possibilities to generate results with a good balance of risk and return. In this sense, the macro theme of infrastructure could be incorporated as a countercyclical strategy to help recovery after the social and economic impact of the current market environment.

“The integration of intelligent infrastructure will generate urban complexes that allow a positive coexistence between the environment, society, and modes of connectivity. All with a goal of long-term improvement in people’s quality of life and recycling resources to preserve the planet,” says Moufti.

Infrastructure is a multi-decade driver of development, and it is vital to choose the right strategy for investing in it. “We put a lot of research effort into developing our benchmarks, along with our index partners, to help ensure we capture all the long-term opportunities,” says Moufti. “Some sub-themes may outperform in some cycles, but the most important thing when creating thematic indexes is to capture the entire opportunity set so that the growth in that theme accumulates in the portfolio.”

Smart City Infrastructure is an ETF developed with not only megatrends in mind, but also the UN SDGs.. This and other types of instruments with exposure to smart infrastructure themes are a solution aligning an investment portfolio with major global trends and investing in cities that are already leapfrogging into the future.

Additional related products:

Sources:

¹ ONU. “Objetivo 11: Lograr que las ciudades sean más inclusivas, seguras, resilientes y sostenibles”. https://www.un.org/sustainabledevelopment/es/cities/ As of November 2021

² ONU-Habitat. (20 junio 2017). “Tendencias del desarrollo urbano en México”. https://onuhabitat.org.mx/index.php/tendencias-del-desarrollo-urbano-en-mexico As of November 2021

³ UNAM (2018). “Mientras la población crezca más que el PIB, los problemas económicos en México serán mayores”. https://www.dgcs.unam.mx/boletin/bdboletin/2018_299.html As of November 2021

⁴ ONU-Habitat Op. Cit

⁵ ONU. “Objetivo 11: Ciudades y comunidades sostenibles”. https://www1.undp.org/content/undp/es/home/sustainable-development-goals/goal-11-sustainable-cities-and-communities.html

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John William Olsen: “There Is a Long-Term Tailwind for Environmental and Social Solutions”

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CMYK - John William Olsen Conversation — Foto cedidaJohn William Olsen, gestor del fondo M&G (Lux) Positive Impact.. John William Olsen: “Hay un viento de cola a largo plazo para las soluciones medioambientales y sociales”

John William Olsen, manager of the M&G (Lux) Positive Impact fund, believes that all investments have an impact on people and the environment. Now that investors are aware of this, he thinks that fund managers have a great opportunity to boost SRI. In this interview, we discuss with him how they are tackling this challenge and how it is reflected in the strategy he manages.

1. Why do you think impact investing has become an easy way for investors to invest sustainably?

All investments have an impact on people and the environment, whether positive or negative, intentional or unintended. Impact investing involves setting impact objectives alongside financial return objectives and quantifying and measuring these over the period of investment. Defining the impact that is (or is not) wanted and constructing a portfolio to meet the objectives enables investors to seek both financial return at the same time as aligning capital with broader objectives. With this, clients can put their money to work with a purpose.

2. Normally when we think of impact funds we relate it to equity funds. Why does it seem to be a type of strategy that fits better in this asset class? Is there room for a greater presence of fixed income in impact funds?

All parts of the investment chain have a role to play when it comes to impact investing – from catalytic capital such as blended finance, through to private assets and then listed equity and credit. Some asset managers, such as M&G, can play across that whole sphere, with an end-to-end impact financing approach.

Impact investing is growing rapidly. The Global Impact Investing Network’s latest surveys estimated the size of the market at $715 billion, with 36% of impact capital invested in private debt and 16% in private equity. While the majority of impact assets are in these two asset classes, impact investing across public equity, real assets and public debt is on the rise. But whether we are talking about early stage private asset investments or public listed investments, there are some crucial principles to impact investing that all investors should adhere to: intentionality, additionality, materiality and measurability.

3. In this regard, what is most relevant?

Every impact investment should be made with purpose to deliver positive outcomes that will support the United Nations’ Sustainable Development Goals. The investment must make a positive contribution to solving a challenge – investing in businesses that are bringing something new, innovative and additional to addressing that challenge. It’s also key to look at how the investment materially impacts the outcome that you’re looking to generate. And last, but not least, measurement is crucial.

4. In the current context, and looking ahead to 2022, what role can and will impact strategies play in investors’ portfolios? Why?

There is a long way to go in orienting towards a more sustainable and equitable society, but while there are obstacles and uncertainties, there is a palpable sense of hope as we continue to emerge from the COVID-19 crisis. The next nine years hinge on whether political leaders, companies and investors can help drive the shift to bouncing back in a resilient and equitable way – redesigning the future and pulling out all the stops to reach the UN’s 2030 deadline. An increasingly engaged population of concerned citizens also has a critical role to play in embracing behavioural change and holding these other actors to account. The world has pledged to ‘build back better’ – and we must keep that promise. We think investment strategies that are addressing these challenges will only gain in importance.

5. Taking the M&G – M&G (Lux) Positive Impact fund as a reference, we see that it invests in six areas. Why have you chosen them?

The fund embraces the United Nations Sustainable Development Goals framework and invests in companies focused on six key areas, mapped against the SDGs. These are: climate action; environmental solutions; circular economy; better health, saving lives; better work & education; and social inclusion. The SDGs provide a solid, excepted framework for determining material impact areas, and help frame the measurement of how those positive impacts are being achieved. It is estimated that by 2030 delivering capital to the SDGs could be a $12 trillion investment opportunity.

6. What’s your portfolio construction process?

Selection begins with a global universe of over 4,000 stocks, which is then initially screened for minimum liquidity and market-cap criteria, as well as screening out companies that are not capable of delivering demonstrable positive impacts to society. From this remaining pool of stocks the team ‘screens in’ a watch-list of some 150 impactful companies that can be purchased if the timing and price are right. These companies are analysed under the team’s ‘III approach’, examining the Investment case, Intentionality and Impact of a company to assess its suitability for the fund. As part of this analysis, it scores companies on these III credentials, and requires above-average results for consideration within the watch-list, as well as consensus agreement of a company’s merits from the entire Positive Impact team.

7. I understand that the areas in which the fund invests have in common that they are megatrends or, at least, part of the secular growth. What is your outlook for them?

We believe there is a long-term tailwind for environmental and social solutions. On the social side, the pandemic has shone a harsh spotlight on a range of development challenges and highlighted the need to step up efforts to achieve the UN Sustainable Development Goals. On the environmental side, we have seen an increased focus on reaching net-zero and a surge of ‘green deals’ worldwide. We believe that companies that offer solutions that help address the world’s biggest societal challenges are well positioned for the future decades of growth.

8. Taking this fund as an example, how do you measure the impact and does the investor show interest in this information?

We focus on each company’s given impact, assessing how its business activities are aligned to specific societal impact challenges that we have identified as both needing investment and being investable by public equity investors. We test the company’s stated purpose or mission statement, asking: “is positive impact genuinely a part of the business’s DNA and a demonstrable part of its corporate strategy? Or is it just good PR?” We assess whether the company’s actions demonstrate clear alignment with that purpose, and weigh up positive impacts versus negative impacts, in particular excluding any company whose activities represent an overwhelmingly negative impact that counterbalances any positive impacts it may deliver.

We start with a qualitative assessment of a company’s business: what is it doing to address a particular impact challenge, and how much of its business is aligned to that challenge? While this assessment is qualitative, the UN Sustainable Development Goals (SDGs) have provided a more quantitative framework for investors, and we map every company’s business activity to these goals. Importantly, we use the 169 underlying targets to give this analysis greater focus.

9. What are the main changes you have made to the fund in the last year and how are you preparing for next year?

We have further shifted the portfolio towards the ‘under-served’ and ‘under-addressed’, to help ensure that the impacts being delivered are truly additional and material, while also steering the portfolio towards ‘C’ companies, as represented by the IMP+ACT ‘ABC’ classification system: ‘A’ investments act to avoid harm; ‘B’ benefit stakeholders; and ‘C’ contribute to solutions. We expect this shift will continue into next year and beyond.

Healthy Cities

| For Meritxell Sedo | 0 Comentarios

Jonathan Roger Blue City — Pixabay CC0 Public DomainJonathan Roger. Jonathan Roger

Smart cities aren’t just about robotics and futuristic design. To be truly smart, they also need to protect and promote the health of their inhabitants – a task that’s all the more pertinent in the wake of the Covid-19 pandemic, which saw busy, crowded metropolises reporting some of the highest rates of infection.

In all, a smart city can reduce the disease burden by up to 15 per cent and reduce greenhouse gas emissions by around 10 per cent, research from consultants McKinsey shows (1).

According to the Pictet-Smart City Advisory Board, it’s not just about healthcare but also about taking care of the population’s health even before they get sick. The aim is to create an environment that promotes healthy living. It’s a priority for planners and regulators, and an opportunity for businesses and investors, according to the Advisory Board members, who dialled in from cities across the globe.

Pollution is a major challenge. More than 80 per cent of city dwellers are exposed to air quality that breaches WHO’s limits, with the problem particularly acute in low- and middle-income countries (2). Air pollution, in turn, is a major cause of illnesses and diseases, accounting for some 4.2 million deaths a year (3).

A holistic approach is needed. That includes more parks and greener buildings – both figuratively, in terms of reduced emissions and improved efficiency, but also literally, using plants within construction projects.

Businesses are increasingly embracing the innovation challenge. The 51-storey Jian Mu Tower in Shenzhen, China, for example, will provide 10,000 square meters of space for aeroponic farming, growing everything from salad greens to fruit and providing enough sustainably-produced food for some 40,000 people. These plants will absorb 200,000 kg of CO2 a year, as well as helping to shade the building, thus improving its energy efficiency and reducing the need for air conditioning.

Another way to reduce pollution is to encourage people to use alternatives to petrol-guzzling cars. That could mean making better use of existing public transport infrastructure, including sensors and apps to encourage people to travel at quieter periods – something that may be increasingly possible thanks to the advent of flexible working. (Conventional trains in Europe, for example, run on average at 35 per cent of capacity (4). They may be full during rush hours, but there is plenty of room at other times.)

Micromobily – from bikes to scooters – not only reduces the need for cars but can also have health benefits for users. By 2030, the micromobility market could be worth up to USD500 billion, according to consultants McKinsey (5). The trend can be further accelerated with more infrastructure – like secure parking and charging points – as well as with better city design.

Waste management, clean water and sanitation are also key. As an island with limited freshwater resources and limited land, Singapore is one of the leading innovators, with initiatives such as a new deep tunnel sewage system and high-grade reclaimed water. NEWater, the name Singapore’s Public Utilities Board gives to its highly treated reclaimed wastewater, is purified through a multi-stage process – including microfiltration, reverse osmosis and ultraviolet disinfection – and used in industry and for air conditioning. During dry periods it is also added to reservoirs, where it is mixed with raw water, treated again and supplied to consumers’ taps.

Accommodating ageing

Covid-19 highlighted the need for healthcare infrastructure. This is a growing area of the economy – Singapore, for example, has doubled its healthcare spending over the past decade.

Cities need to provide easy access to everything from basic diagnostic centres and strengthened early-stage outpatient treatment capacity to acute hospitals and assisted living. Technology can help, bringing access to diagnostics via apps, enabling doctors to consult colleagues remotely or speeding up diagnosis and drug discovery with the help of machine learning. The growing telehealth universe includes companies such as Teladoc Health Inc, which diagnoses, recommends treatment, and prescribes medication for routine medical issues through phone and video consultations (6).

Care for the elderly is becoming increasingly important as populations age. Of the 238 million people aged 65 and over in OECD countries, some 43 per cent live in cities (7). A key focus is on assisting people to stay in their homes even when they can no longer be fully independent. Swiss non-profit Spitex, for example, provides millions of hours of home care and assistance each year, offering services which range from changing bandages and administering medicine to meal delivery and wheelchair hire.

Technology also helps the elderly stay healthy and independent for longer – something that Lucerne’s iHomeLab has focused on. Its CleverGuard, for example, uses non-intrusive appliance load monitoring (NIALM) technology to analyse current and voltage. It detects any unusual patterns in the use of electrical appliances, including any unexpected inactivity which could be a sign of help needed. The iSens light sensor, meanwhile, can be installed next to the bed and used to alert carers of any abnormality in movement.

Last but not least, city infrastructure needs to be able to cope with the next pandemic – including plans and facilities for quarantine accommodation, for the isolation for the mildly ill (to reduce pressure on hospital beds), for the rapid conversion to ICU beds and for centres to distribute masks and vaccines.

Sustainable cities are one of the UN’s Sustainable Development Goals, and health is a key part of that – from reducing the adverse environmental impact of cities to ensuring access to green spaces and sustainable transport systems. The Covid-19 pandemic has made these targets all the more urgent. Investors can help drive the change, embracing a growing number of opportunities and innovations.

Tribune written by Thematic Advisory Board.

Discover more about Pictet Asset Management’s expertise in thematic investing.

Notes:

(1) Theoretical improvements in key KPIs if a “smart city” concept is being applied. Source: McKinsey Global Institute analysis, 2018

(2) WHO, “Global Urban Ambient Air Report”, 2016

(3) “Global, regional, and national comparative risk assessment of 79 behavioural, environmental and occupational, and metabolic risks or clusters of risks, 1990-2015: a systematic analysis for the Global Burden of Disease Study”, Forouzanfar et al.

(4) European Environment Agency, 2005

(5) McKnisey, “Micromobility’s 15,000-mile checkup”, 2019

(6) Teladoc Inc is part of the Pictet-Smart City portfolio

(7) OECD, “Ageing in cities”

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Brazil: Patria Investments Boosts its Alternatives Offering with a Growth Equity Strategy

| For Javiera Donoso | 0 Comentarios

Patria Investments, leading alternative asset manager in Latin America, has recently announced the launch of a new growth equity strategy through a partnership with Kamaroopin, a private markets investment group previously affiliated with Tarpon Investments and led by Pedro Faria.

As reported by the Brazilian firm in a press release, the partnership is structured in two stages. First, establishing a minority stake during a joint fundraising campaign, and then a full business combination contingent on fundraising success and certain other requirements.

“Growth Equity is highly complementary to our flagship private equity business, and expands our product offering to meet a key area of investor demand. We are excited to partner with Pedro and the Kamaroopin team on this new initiative that will broaden Patria’s presence across the private markets value chain. Our investment philosophies are highly aligned with a sector-based focus, and a commitment to being not just investors, but company builders”, ” said Alexandre Saigh, Patria’s CEO.

With market size of more than 15 billion dollars in Latin America, Venture Capital and Growth Equity strategies are in high demand. Venture Capital transaction volume in Brazil has grown at a CAGR of more than 40% over the last decade, with transaction value reaching 6.6 billion dollars in 2021.

A new partner

Kamaroopin was created in 2018, and currently has three invested portfolio companies where they partner with great entrepreneurs as investor operators to drive growth through single minded consumer focus and tech-enabled business models. Their portfolio has generated a 2.7x gross multiple based on June 2021 valuations, led by their signature first investment in Petlove, the #1 digital Petcare platform in Brazil. Kamaroopin’s current portfolio amounts to nearly BRL 1 billion (or more than 175 million dollars) in assets under management, and they are profitable on a Fee Related Earnings basis at current size.

Faria, its founding partner, highlighted that Kamaroopin was founded within the SK Tarpon ecosystem, with the mission to be company builders, operating as true partners of entrepreneurs and teams. “We are taking a step further with the association with Patria, the leading alternative investment firm focused on Latin America. We are inspired by their team leadership and successful investment model. We will strengthen our ability to back many more companies and build consistent and lasting business legacies”, he added.

The details of the transaction

While detailed financial terms of the transaction have not been disclosed, the structure will comprise two stages. The first one includes an agreement to acquire a 40% minority stake in Kamaroopin’s existing business for cash consideration, which upon closing will launch a joint fundraising campaign for a new Growth Equity fund.

The second stage would trigger the acquisition of the remaining 60% stake for equity consideration, contingent on achieving pre-defined fundraising objectives, and fulfilling certain other requirements. Should the requirements for the second stage not be satisfied, both firms would have optionality to unwind the transaction.

Patria Investment believes that the agreement will have minimal impact on its near term Distributable Earnings, with the exception of an attractive performance fee opportunity on Petlove. As part of the partnership, it will be entitled to participate in the crystallization of Petlove´s eventual performance fee, in a structure that was designed to provide the best alignment of incentives among all parties.

Upon the closing of stage two of the transaction, Kamaroopin’s earnings would be fully consolidated, and including revenue from the new fund, the strategy is expected to be profitable on both a Fee Related Earnings and Distributable Earnings basis with significant room to scale moving forward.