The man in charge of external asset management at Swedish national pension fund AP1 said it would be very difficult for the SEK355bn (€35bn) buffer fund to take on a new asset manager while COVID-19 continues to limit contact to video meetings.
Majdi Chammas, AP1’s head of external asset management, said in a podcast: “It will be very difficult to initiate a new relationship […] because part of our process is to make on-site due diligence with the managers we are considering investing with, and to pick up the culture, to see all the resources.”
His comments echo the experience of peers at other Nordic pension funds, with the likes of Oslo Pensjonsforsikring and AP7 a fortnight ago expressing their reluctance to award new mandates without first having physical meetings with potential managers.
In early January, Norway’s NOK11trn (€1trn) sovereign wealth fund divulged that none of its mandates had gone to new asset managers since the new coronavirus broke out and necessitated a switch to online meetings.
Chammas said AP1 had not in fact tried to make any new investments or initiate any new relationships with any manager since the pandemic began, having instead been busy with the implementation of its fossil fuel-free strategy which involved existing managers.
“So the answer is probably we haven’t been tested yet,” he said, in the podcast produced by institutional investment data firm eVestment.
“But I would be very hesitant to rely on just Zoom meetings to make any new investments,” he said.
This was because part of the reason for having a physical meeting was to watch the interaction between different people in the team, according to Chammas.
“So when you have the PM and the analyst, or you have the CEO, or CIO in place and you see how they interact and how they behave in the same room and answer the questions, that is something that’s very hard to even pick up 1% of on Zoom, because it doesn’t exist – you are not sitting in the same room as your colleagues,” he said.
However, he said that using video conferencing platforms such as Zoom, Teams or Webex was actually quite efficient for contact with existing managers, because it was possible to have meetings at more or less any time.
Chammas also revealed key aspects of AP1’s thinking behind new manager appointments.
He said AP1 believed managers would outperform if their firm had the right culture, a defined philosophy and a process considering ESG.
“Our research process is built around all those pieces of information,” he said.
Apart from determining that an asset management firm had committed to ESG, and that there was “a chain of belief” in its importance running through the organisation and even the companies it invested in, Chammas said AP1 also wanted to see that firms were allocating resources to ESG.
The Swedish pension fund also wanted to see managers using their own ESG analysis and data, Chammas said, rather than relying on third party providers such as MSCI and Sustainalytics.
“We’d like to see the managers do the analysis themselves and do it in a way that fits into their philosophy and into their process,” he said in the audio interview.