A lot of the big themes facing international investment managers have a sustainability flavour to them. Here are some examples of particular relevance to emerging markets: • urbanisation and industrialisation; • pressures on social infrastructure, such as education and healthcare; • raw materials constraints or shortages; • a regulatory backlash from climate change; • a wave of ramifications still to come from the global financial crisis; • the post-Madoff world of transparency; and • a shift in social requirements following a generational change where companies must now be seen to be doing the right thing, such as retailers managing their supply chains to avoid exploitation of workers. According to Andrew Ness, investment manager in the Martin Currie emerging markets team, the world is changing and a lot of the changes are secular in nature and require qualitative analysis.
“Qualitative analysis is harder than the quant work, but just because it’s harder to quantify some of these [sustainability] issues it doesn’t mean they shouldn’t be analysed,” he says. Ness was in Australia from the manager’s Edinburgh head office in February with Kim Catechis, the firm’s director of emerging markets equities. Both are part of the sixperson team hired from SWIP last year to add gravitas to Martin Currie’s offerings in emerging markets. They can demonstrate a 10-year track record of working together at the other Scottish firm. Kimon Kouryialas, Asia Pacific head, says the firm let the new team settle in and it is only in the past few weeks that the managers have been discussing their strategy with clients and consultants.
He is confident that an Australiandomiciled core emerging markets equities fund will be seeded shortly. The eight-person Martin Currie team conducts its research on a sector basis, which Catechis says makes it easier to compare apples with apples. It also invests on a three-year time horizon, with the average portfolio stock being held for two-and-a-half years. “We do a lot of in-depth due diligence and find that when we assess sustainability issues it really enhances the fundamental analysis. It produces a high-conviction portfolio between 40 and 60 names.” In the UK, in particular, there is increasing pressure on funds managers by the public sector funds to demonstrate the inclusion of sustainability factors in their stock selection processes.