Opportunities in the German SRI market vary, depending on one’s focus. Pensionkassen and other forms of retirement institution with deficits and minimum return guarantees on their minds are wary enough of equities as a whole, never mind new concepts which may appear at first sight to compromise the all important investment returns.
One the other hand, Germans as a whole readily embrace the subject of social and environmental protection. There is as much enthusiasm for the subject in Germany as one can find anywhere.
For example, the committee of experts working on the SRI funds offered by Dusseldorf-based fund manager Versiko work on a voluntary basis. This enthusiasm combined with the depth of expertise form part of the rationale behind the decision of Fortis Investments of Belgium to take a 25% stake in the company.
Through the deal, which gives it a seat on Versiko’s supervisory board, Fortis will offer a niche SRI product. “It is a real SRI fund run by people who are passionate about SRI,” says Thomas Rostron, managing director of the client service & business development division at Fortis Investments.
The deal is that Fortis will manage Versiko’s flagship ÖkoVision global equity fund. Set up in 1996, it has a strong small- and mid-cap bias and a current value of just over E140m. Of that amount institutional business accounts for around one third.
The 12-strong committee includes experts from various fields such as biology, development projects, agriculture and organic food, energy, health, international trade, geography, engineering, sociology, and governance.
The investment committee defines the investment universe based on the latest developments and future trends; company analyses from an SRI and future value potential perspective, excluding current valuations; ideas and leads from committee members’ individual SRI networks.
For its part Fortis will have final responsibility for investment policy. “We will do the research and attend the company meetings,” says Rostron. “We will prepare the documents, materials – and recommendations for the committee to consider. We will also be responsible for quantitative analysis and portfolio construction.”
The other differentiating factor, as Rostron explains is that “Versiko’s SRI policy is positive. The approach does not use an overlay that excludes whole sectors such as paper production, for example. It uses a bottom-up approach to investigate companies to see if there is a paper production company that uses environmentally friendly production and waste disposal methods.”
He adds: “We look at companies that are very different from those that are looked at typically in SRI funds. Two thirds of the ÖkoVision portfolio consists of small- and mid-caps.”
This is interesting given that large-cap companies often promote their SRI credentials – if only to boost their corporate image. “Yes, but it tends to be small- and mid-caps that really have a socially and environmentally friendly focus.”
The current investable universe includes 135 companies from 17 countries. Currently there are 60 companies in the portfolio.
ÖkoVision primarily invests in companies which develop, produce, trade in, promote the sale of or themselves use:
q Environmentally or socially friendly technologies;
q Long-lasting, easily repairable and environmentally friendly consumer goods;
q Renewable sources of energy, or sources which reduce the use of fossil fuels and nuclear power generation or technologies which limit the use of energy;
q Foodstuffs using ecological methods;
q Services promoting environmentally or socially friendly business;
q Services reducing the exploitation of natural resources;
q Regional economic cycles or fair trade with the ‘Third World’;
q Show social or ecological commitment beyond the basic purpose of the company or which create particular democratic corporate structures, social or emancipatory working conditions or institute measures to reduce discrimination.
The ultimate endorsement of the approach is that Versiko’s SRI funds have outperformed those funds employing more traditional methods.
Fortis Investments has ambitious expansion plans for the product. “We hope to grow the fund to E1bn in five years’ time,” says Rostron.
“We will also expand Versiko’s presence from its traditional German-speaking base to France, Benelux, Spain and Italy,” says Rostron. “In France legislation might make an SRI component in retirement savings plans compulsory.”
Typical clients include those that feel strongly about SRI, such as foundations, trade unions and religious organisations, or indeed high net-worth individuals.
It is clear that with a concept based on such sophisticated research the job of selling to the more wary investor will pose a significant challenge.