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Show hosts Dan Mikulskis and Mary Spencer catch up with Sonja Laud from LGIM on her CIO's perspective on active ownership for passive managers and more.

Key takeaways

Investing frameworks and principles that Sonja brings to her role:

• Acceleration of responsible investing
• Integration of ESG factors
• Thinking about the responsibility as intermediary in doing this on behalf of clients
• It is vital to bring all the investment talent together including re-tool analysts and investors
• Merged credit and equity research teams to form holistic company view, looking from all angles
• Look at company from stakeholder perspective, think about externalities
• Think about sustainability of business model

Legal & General starts with the vision of inclusive capitalism, clear purpose which gives buy-in across the business from the beginning.

Migrating responsible investment criteria across from equity to other asset classes. Responsibility as large capital intermediaries to effect positive change.

The financial materiality of factors will affect bond pricing too. Companies winners vs losers, and cross asset classes.

The Economist report on future of asset management 

There are two conclusions: move to passive and move away from capital allocation to stewardship.

Can large passive managers think about stewardship the same way as an active manager?

• It’s still an open question right now. Need to find a process to engage across all clients. LGIM favour an integrated approach where stewardship is done consistently across all assets they are managing.
• The effectiveness of company engagement comes down to the research team, so having both passive and active helps, it’s still an evolving area.
• Passive owners need to see themselves as part of journey. Divestment might not be available but it’s a blunt tool anyway.
• Has passive got further to go? Yes. There’s a lot passive managers can do. Use voting rights to be an active owner and express a view
• 2020 has shown us that understanding long term themes is important. None of the themes are ground breaking by themselves. But understanding how to embed in investment process has helped.

What are clients asking for?

There are two areas of interest:

1. ESG, with a climate focus. Thinking about and measuring climate risks
2. Expected market returns, in particular for government bonds and credit. The journey has been strong, but what is the future trajectory of returns? Allocation models give you a much higher equity proportion these days as you can’t expect the same returns from bonds.

How have client conversations gone over 2020?

• It is broadly positive – communicated regularly in the most difficult period and this helped guide clients through. Some actions with clients re-allocating.
• Moderately optimistic that 2021 could be a good idea for risk assets.
• Sonja’s approach as CIO is to let views form bottom-up from the individual investment teams, not top-down.

What are the big factors going to be over next 10-20 years?

• Policy making – central banks.
• Climate transition: if right in the theory that climate materiality not captured in markets there are big changes coming.
• For asset managers scale will matter to bring all this together.
• The client experience will be the other big driving force. Investment excellence has been the driving force so far. Going forward this will be part of the equation, client experience will be much more important in the future and will be a big ingredient in success of asset managers in the future.

How does the asset management industry engage with clients?

• It hasn’t been particularly innovative on this in the past. Got away without focusing on it enough. A more personal approach of engaging with clients could be a disruptive force.
• Industry needs to practice what it preaches on diversity and positive change.
• There has been lots of cultural change in asset management over the years – but the stubborn perception persists that this is a male-dominated, heavily quantitative industry. There’s an opportunity here to let young people know what a fabulous, dynamic and purpose driven industry asset management can be.
• The idea of private wealth creation is so important to society, aligning this with a positive impact could be very impactful.
• Hope we can get to a point where investing is more attractive to a broader part of the population. Make this more popular by having a stronger purpose attached to it.

One thing to take away

• We need to give the investment industry a second look, so much potential to do societal good and widen out to a broader audience.

Underappreciated thing about investing

• It really isn’t just about “the numbers”. Analytics are a big part, but increasingly not all of it.

Recommendations

• LGIM podcasts 

• Sonja’s bio 

• Michelle Obama biography 

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Each LCP investment uncut podcast is for information and marketing purposes only and does not constitute any form of investment or financial advice or a financial promotion (under the Financial Services and Markets Act 2000). All views expressed by the podcast hosts and guests are purely their own opinions and do not represent those of LCP, its clients or affiliates. Our podcast listeners should always seek independent financial or legal advice before making any financial or investment decisions. Please refer to the Legal Notices section on the LCP website for further information.​