The Bottom Line: Senior executives at leading publicly listed asset management firms acknowledge the growing role and strategic importance of sustainable investing in their business.
What asset management companies are saying about sustainable (and ESG) investing?
Based on publicly listed asset management company 3Q 4Q 2019 earnings calls comments and Q&A. Coverage of excerpted comments related to sustainable investing made during the latest earnings conference calls. Remarks are extracted from full earnings call transcripts and have not otherwise been edited or modified in any way.
Q3/Q4 2019 earnings call references to sustainable and ESG investing in January to early February 2020 include: Affiliated Managers Group, BlackRock, Federated Hermes, Invesco and Legg Mason.
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Affiliated Managers Group Inc. (AMG) Q4 2019 February 3, 2020 Earnings Call
Prepared Remarks (Jay C. Horgen, President and CEO): …Finally, as investors increasingly focus on ESG, many of our affiliates have launched ESG products that are gaining momentum.
Question (Bill Katz, Citigroup): Okay. Thanks. Thank you very much for taking the questions. Good morning, everybody. So it’s actually, so the new presentation and so forth. And maybe sort of kick off the questioning with on the deal side, so both Jay, Tom, you both mentioned sort of a refocus to more deal-oriented type of capital deployment. Could you talk a little bit about maybe where you see the greatest opportunity, whether it’d be distribution side or product side and then maybe sort of a thought process on sort of where deal pricing is right now. We’ve seen some pre-elevated deals in the wealth management space, and then finally sort of the funding mix on that.
Answer (Jay C. Horgen): Great. Good morning, Bill. Thank you for your questions. Really glad you asked that since you’ve known us for a long time and you know new investments this core to our strategy. And yes, I think you picked up that there is a focus on that, and it’s a growth opportunity. The short answer to your question is, we are dedicating significant resources to the effort. As you heard me say, our pipeline has gained momentum in recent months and we are in advanced discussions with a number of high-quality prospects. We do expect to make new investments in the near term. We are focused on prospecting in areas of secular growth trends and client demand trends as you would expect. Those areas include private markets, multi-asset solutions, ESG, fixed income alternatives, emerging markets. And today, we have a pipeline that’s representative of these areas.
One thing to note, is we don’t necessarily need to do large deals. What’s important is the growth potential of the new prospects and AMG’s ability to accelerate that growth. On your point, regarding pricing, you’re right, pricing in certain areas of the market is high, wealth management and illiquid businesses in particular. In other areas, it come down pretty dramatically. We remain disciplined in structuring new investments to address future outcomes and align that with shareholder value creation. Maybe stepping back for a minute. How are we positioned at AMG? That’s worth noting. We’re one of the very few firms that can execute transactions across the full lifecycle of the business. From early transactions that provide growth capital through, to succession-oriented solutions to support generational transition, which we’ve always been known for.
As you know, we take a permanent partnership approach to preserve the culture and independence. It allows us to scale without the cost of integration. We’ve built a reputation for being a successful partner that takes decades. And through those decades, there have been opportunities for us to learn and adapt both from our successes and our mistake. We think we’ve built an outstanding reputation in the industry for addressing the needs of high quality independent entrepreneurial firms that want to — that want to build enduring franchises.
And as I mentioned, we continue to think about refining our structure and finding additional ways to support our affiliates growth, let them achieve long-term success. So taking all of that together, both the specific — the specifics as well as the positioning, we are bullish on our near-term pipeline and equally bullish on building AMG’s position on being the partner of choice to independent firms over the long term. Thanks for your questions.
Question (Patrick Davitt, Bernstein): Hey, good morning, guys. Thank you. Perhaps more broadly on flows to that last question, do you think there is a path to inflow this year, when you look at the pool of AUM outflowing against the pool of AUM inflowing? And what do you see as the key levers getting you there if so?
Answer (Thomas M. Wojcik, Chief Financial Officer): Patrick, why don’t I start and then maybe Jay can share some color as well. Thanks for your question. So we spend a lot of time in our prepared remarks talking about our strategy. And really importantly, our strategy is all about driving long-term earnings growth. When you look at our existing affiliates, we feel very good about the combination of their positioning against long-term client demand trends and where those products can live and add the client portfolios, as well as their long-term performance track record. So when we think about the organic growth profile of our existing affiliate base over the long term, we continue to be very bullish.
We’re also confident that, as we add new investments, we’ll continue to add new affiliates that also have substantial organic growth potential and can act as an accelerant to our organic growth overall. In the near term as you know, we continue to have some performance challenges on the quant side. And as Jay just mentioned, that’s where we’ve really seen headwinds in recent flows. And as those performance challenges are addressed, we do expect to see continued near-term pressure from a flow perspective in that area.
Importantly though, those areas are now really contributing less than 10% of our EBITDA on a run rate basis, so while we’re seeing it in our flow profile, the impact on our earnings is significantly less. I’d also note that at the same time we’re seeing significant positives in our business in areas that are contributing a much greater amount to our EBITDA. And Jay referenced a number of these, but I’ll recap them. First, our illiquid alternatives, affiliates, really they’re benefiting from record allocations in the industry and very strong fundraising at our affiliates. On the wealth management side, we have sticky assets that are contributing to stable and growing earnings streams. Jay referenced ESG where we’ve seen some strong fundraising and we think we’ve got some opportunities going forward, and we’ve got very strong performance in our fundamental managers.
So to recap, I think in the short term, we will still see some quant headwinds, but over the long term, we’re very, very bullish, both on our organic growth prospects, but perhaps more importantly, on our earnings growth prospects.
BlackRock Inc. (BLK) Q4 2019 Earnings Call January 15, 2020
Prepared Remarks (Gary Shedlin, Chief Financial Officer): During 2019, the iShares ESG Leaders fund raised over $1 billion representing the largest equity ETF launch in the past 15 years.
Our innovative Liquid Environmentally Aware Fund or LEAF continues to see strong momentum with $1 billion of net inflows since launch earlier this year. In summary, our 2019 results demonstrate the resilience of our platform, which allows us to invest through market cycles and drive consistent and differentiated growth in a variety of markets.
Larry Fink (Chairman and Chief Executive Officer): Thank you, Gary. Good morning, everyone and Happy New Year, and welcome to a new decade. BlackRock has consistently and systematically invested for the future in preparation to meet clients changing needs by building a whole portfolio investment and technology platform providing thought leadership on the macro and geopolitical environment, and innovating in areas like factors and sustainable investing, we are adapting to and driving change in our industry and building deeper, more strategic partnerships with more clients than ever before.
The benefits of our investments are evident in our results this morning. We generated a record $429 billion of total net inflows for the year, representing 7% organic asset growth and 5% organic base fee growth. BlackRock’s result reflects the strength of our platform, which is diversified across now $2 trillion in active strategies, $5 trillion in iShares and index strategies, and now over $500 billion in cash strategies.
We generated $226 billion of net inflows in iShares and index. We generated a $110 billion of flows in active investing and we generated $93 billion in cash strategies. Flows were positive across all client channels, across all asset classes and across all regions, including more than $1 billion of net inflows in each of 16 countries and in more than 71 different products. The total net new assets our clients entrusted to us in the past year equates to the level of assets under management of a top 50 global asset manager.
After dramatic fourth quarter 2018 market decline, which lowered BlackRock’s AUM last year by $500 billion, we began 2019 at a challenging starting point. We ended the year with a base fee rate run rate that was about 6% lower than 2018 base fees. However, the successful execution of our 2019 strategy delivered revenue growth, operating income growth, earnings growth and alongside we are continuing to invest in future opportunities.
2019 was marked by heightened geopolitical and trade tensions, which created volatility in financial markets, uncertainty around the US and China trade negotiations, Brexit and other concerns about a slowdown in global growth, all impacted investor sentiment driving industry flows into safer fixed income and cash strategies, cash assets throughout the year. In a late cycle dovish turn by central banks globally, monetary policy proved again a powerful tool in offsetting so much of the geopolitical risk. We saw equity markets close 2019 at record highs, followed by decisive UK elections to move forward with Brexit and now we have a preliminary agreement on trade that will be signed today by the US and China. The S&P 500 finished the year up 29% and yet emerging markets only rose 15%.
2019 also marked a year of milestones and transformations for the asset and wealth management industries. The ETF industry crossed $6 trillion in assets and iShares crossed $2 trillion. We still believe iShares in the industry are at the early stages of growth. However, as clients are using iShares in many ways, including as liquidity management for hedging instruments but also market access vehicles for central banks and to tactically access markets for alpha managers.
Increasingly, we are hoping clients use iShares as an instrument of active returns in public markets that’s creating large and significant new market opportunities. Sustainability reached an inflection point with more and more clients focused on the impact on environmental, social and governance factors on their portfolios, some to better align their investments with their values and more because of the implications of financial risk and returns related to sustainability and climate change.
As I discussed in my Letter to CEOs, which came out yesterday, we’re entering a new era of finance. The investment risk presented by climate change are set to drive a significant reallocation of capital, and companies, investors and governments, we all need to be more prepared. Throughout the year, BlackRock continued to invest in further differentiated — that further differentiated our business model, we adapted to and drive change in our industry and ultimately enabled a deeper, a more comprehensive partnership with more clients than ever before. The benefits of our investments in strategic growth areas are clear. We saw strong flows in iShares, record flows and commitments in illiquid alternatives, record revenues in technology services in 2019, and active strategies where the industry faced muted flows, BlackRock generated $110 billion of net inflows and our active AUM is at a all-time high.
Our Liquid Environmentally Aware Fund franchise is nearing $8 billion in size, less than a year after our launch. And we made significant progress to lead the industry in growth areas like OCIO, factor based and sustainable investing and our regions around the world, including most recently China. iShares is the ETF market leader and generated $183 billion of net inflows for the year. 57 iShare ETFs each generated more than $1 billion of net inflows and we saw record flows in fixed income and we saw record flows in Europe.
We once again captured the number one market share of 2019 in industry flows globally. Also in the United States, in Europe and in high-growth segments such as fixed income ETFs, factor ETFs and sustainability ETFs. We are optimistic about continued double-digit growth in iShares because we see vast new markets opening up in how clients want to use these exposures. iShares is expanding its range as a modernizing force in financial markets.
Nowhere is this more true than in fixed income ETFs. Fixed income ETFs will be one of the largest drivers of BlackRock’s growth over the next decade. The combination of BlackRock’s history as a bond manager, our expertise in ETFs, and our industry-leading technology and data capabilities has created significant differentiation for iShares. After having pioneered the first fixed income ETF in 2002, iShares fixed income AUM surpassed $565 billion and generated a record $112 billion of net inflows in 2019, compared to the previous record of 2017 of $67 billion.
While some of this has been as a result of a strong year in fixed income markets overall, we see this as a secular shift. We see this as a technology shift. We expect to reach $1 trillion in fixed income iShares within the next five years and the growth path is going to be differentiated than equities. Growth in fixed income ETFs is coming from the modernization of the $100 trillion bond market itself and from conversations — conversations of bond securities from institutions, central banks and even other alpha managers into ETFs.
More investors than ever before used iShares factor ETFs to take active risk, tapping into factors as an additional source of potential return beyond strategic asset allocation. We generated $34 billion in factor flows in 2019, significantly outpacing all other index and all other active factor providers. At the same time, we are seeing secular shifts in the regulatory and distribution landscape that is propelling more and more investors to iShares.
For instance, in Europe, we believe the ETF industry could double to $2 trillion over the next five years. As MiFID II is driving change across a variety of business models and price transparency is focusing clients on value for money, which will drive more demand for ETFs. In this region, we are generating record iShares inflows of $60 billion and the industry crossed $1 trillion of AUM as ETF adoption accelerated. And in the United States, we see independent financial advisory and direct platforms shift their strategies to eliminating transaction costs to marketization access to investing through ETFs and enabling more people to invest to reach long-term financial objectives.
We think this will be beneficial for brands like iShares that can deliver client high quality exposures with transparency, with ease of access and for good value. While I’ve seen our monthly flows accelerated across this platform since the move to commission free trading in October, our expectation is for the benefit of these moves to play out in the coming months and years, especially for firms like us that can invest its scale and can invest for the long term.
We also had a record year in our illiquid alternative business and momentum is accelerating, evidenced by increased fundraising and fund vintages as more clients reassess their liabilities and their liquidity needs associated with them, they are taking a longer-term view on the assets in their portfolio and increasing allocation to illiquid alternatives.
BlackRock generated $14 billion of illiquid alternative net inflows in 2019, up from $8 billion in 2018 and just $1 billion of net flows in 2017. Growth was driven by our Infrastructure business, by real estate, by LTPC and private credit. Fourth quarter illiquid alternatives results included the $1 billion close of a third global renewable power fund as well as our second and third close of LTPC in which we secured an additional $1.1 billion of commitments. Growth in our illiquid alternative business will further enhance and supported by our acquisition and integration of eFront, as we leverage technology to enhance better solution we provide to our clients.
Technology remains a key differentiator for BlackRock and a strategic growth area. Technology is how we’ve been able to scale our business into a global multi-asset organization we are today and it enables us to have a deeper, more resilient conversation with more and more of our clients. Our long-term strategy is to provide technology for as much as — much of the asset management value chain as possible and make Aladdin the language of portfolios. Demand remained strong for Aladdin and our technology capabilities, and we expect growth will be driven by expanding Aladdin’s capabilities to existing clients, to attracting new clients, to inorganic growth including eFront and the growth of our clients’ businesses as they scale themselves.
Technology service revenues of $974 million increased 24% year-over-year and more than doubled since 2014. McKinsey Research shows that only 3% of technology start-ups reached $1 billion of revenues. And I’m proud that BlackRock will soon cross that milestone. Our Aladdin and eFront technology is used by more than 900 clients in 68 countries including 16 wealth managers that have 35,000 financial advisors serving millions of end investors.
The vast majority of our technology service revenues today come from our Institutional Aladdin capabilities, which set the standard in investment management technology and now with the integration of eFront this will reinforce our value proposition as the most comprehensive investment operating system for investors in the world.
One of the biggest future growth opportunities is Aladdin Wealth. Macro forces are impacting the wealth industry including a more challenging market environment, heightened customer expectations, more regulation, technology advancements and this is driving demand for a deeper portfolio analytical and risk transparency portfolio construction, product and scale. These are all core to the Aladdin Wealth value proposition. Additionally, we are seeing more and more clients using Aladdin Wealth as a business enabler, particularly in markets such as Europe and Asia where wealth managers are using Aladdin Wealth to move their business away from transaction commissions and retrocession based revenue model to more of an advice-driven model. BlackRock’s technology facilitates our ability to fulfill our purpose in helping more and more people experience financial well-being. By building best in class tools for ourselves and for our clients, we are able to construct better portfolios and then deliver better outcomes.
Tools alone, however are not sufficient. As I wrote about in my Letter to CEOs, BlackRock like all other investors need clear, uniform and useful data on not only financial disclosure, but increasingly more uniform and widespread standard for sustainability disclosure, which will be vital to financial analysis and investment decisions making going forward.
As sustainability becomes increasingly material to investment outcomes, BlackRock is putting ESG data and analytics at the heart of Aladdin and our risk and quantitative analysis team. We are increasingly evaluating ESG risk with the same rigor as traditional measures such as credit or liquidity risk. Client demand for sustainable products and solutions continue to accelerate. As a global leader investment management, our goal is to also be the global leader in sustainable investing by incorporating sustainability at the core of how we manage risk, how we construct portfolios, how we design products and most importantly, how we engage with companies.
As we wrote in a letter to clients yesterday, we will be making sustainability the standard for investing, including making sustainable investing more accessible to more of our investors. We intend to double our ESG offerings to 150 funds over the next two years, including sustainable versions of our flagship iShares product so that clients have more choice for how they invest their money. Client demand is also increasing for Outsourced CIO solutions as many are being asked to do so more with less — they do more with less.
BlackRock generated $16 billion of OCIO net inflows in 2019, representing a 10% organic growth, including winning the largest OCIO mandate awarded in the UK in recent years. Outsourcing currently represents only $2 trillion of the $85 trillion of managed assets globally and we believe the market will increase by 50% over the next five years. I’ve talked many times on these phone calls in the past about BlackRock being one of the largest long-term growth opportunities for BlackRock. In line with our commitment to invest and operate there, BlackRock entered into a memorial — a Memorandum of Understanding last month to explore establishing an asset management joint venture in China, which will enable us to provide more people with access to BlackRock investment capabilities.
As I said in the past, purpose is the agent to long-term profitability. A company’s prospect for growth is inextricably from how it manages sustainability and serves its full set of stakeholders, and that is so true for BlackRock. One of our greatest opportunities is to fulfill our purpose lies in the responsibility as the largest manager of retired assets in the world.
We estimate that two-thirds of the assets we manage are related to people’s retirement, including our $1 trillion defined contribution business. We are levering the full breadth of our capabilities and scale to benefit all our stakeholders, including clients, employees and stakeholders and shareholders. Everything we do is rooted in the culture of focusing on the long term, and we are aggressively embracing change and investing to stay in front of the industry changes, but most importantly, we’re investing to stay in front of our clients need, so we could have them better prepared for their future. The benefits of BlackRock’s investments are evident in our consistent growth. Over the last three years, we’ve generated nearly $1 trillion of net organic inflows, 30% of revenue growth, 19% operating income growth, and a 43% total return for our shareholders.
We entered 2020 better positioned than ever to serve our clients to deliver growth for our shareholders in the years to come. I want to thank BlackRock’s employees for their commitment to upholding our culture and living our purpose, which was critical to our success in 2019. We remain focus in making sure that all our people stay true to our culture and our purpose and that is what differentiates BlackRock in the asset management industry.
Question (Kenneth Worthington, JP Morgan): Hi, good morning. Thank you for taking my question. To follow up on that. So your annual letter, the focus on climate change. So as you did with Aladdin and risk management, are you planning or are there opportunities to leverage the expertise you’re developing in sustainability to profit either by selling sustainable technology or ESG strategy solutions. In other words can sustainability be a new Aladdin for BlackRock rather than just another element of Aladdin?
Answer (Robert Kapito, President): So following up on Larry’s last answer, we certainly see huge opportunities in using the sustainability platform that we have for other profit centers for BlackRock and to add into our Aladdin value proposition. So what I could see coming forward would be creating new screens that others would be interested in to screen for ESG, creating specific model portfolios and models that many of our distribution networks would want to use, potentially creating new indices in the market as people are looking for someone to take the lead and creating an appropriate indices to pinpoint specific areas of sustainability in the future and offer new products like specific ESG ETFs. And it’s already working in that sustainable ETFs for iShares were the fastest growing category in 2019 and it generated $4 billion of net inflows in the fourth quarter or a total of $12 billion for the year.
So I can see also adding on new products, which many of our clients would look for. So, as Larry mentioned, the value proposition of Aladdin would grow as we incorporate our platform into the Aladdin platform for other clients of Aladdin to be able to use. That’s just the beginning of some of the ideas we’ve come up with that that we can put forward in 2020.
Larry Fink: Let me just add to that. As I said yesterday in my CEO letter and the firm’s client letters, we believe sustainability and the issues is going to have a very large investment impact. For those investors investing in — investing in a long illiquid product they have to think now in 10 years if there is evidence of climate change, how that will be impacting that investment that has a 10-year horizon? So more than ever before, we have to drive analytics to help more and more clients, more and more investors understand the interconnectedness of how climate change, the potential impact of climate change, how does that impact every single investment we have. And because of the resources of BlackRock, the scale of BlackRock I believe more than ever before if we execute on what we intend to do and we could, that’s our intention.
If we execute, we have probably one of the broadest opportunities that we’ve ever had. I believe we will be able to differentiate ourselves more than any other firm by providing these analytics by using them on Aladdin as using them as an investment tool this can differentiate us more than every, any other organization. And this is a call to arms at BlackRock. This is probably the biggest project that we’ve worked on in years that we have embraced the entire organization and I want to underline the entire organization to be more prepared to start focusing on the analytics. So we have better understanding, overlaying let’s say imaging technology on the physical impact on the world and different elements of rising temperatures or rising water levels.
By having a better understanding how insurance companies are focusing on their insurance risk and looking at areas that have potential climate risk implications whether that is from fire, flooding or other actions. I do believe, as I said in my letter, the possible changes from climate risk have serious implications in other countries that have heat issues and beyond any flooding issue, it could just be heat that’s changing the output of their crops. What does that mean for that country’s GDP? Should we be — should we honor that country’s debt? These are all really important things and that I don’t believe the investor universe is prepared and it’s the management’s expectations at BlackRock that we become the leader in designing better tools and helping people navigate this uncertain sustainability future. Pretty passionate about it.
Federated Investors Inc. (FII*) Q4 2019 January 31, 2020 Earnings Call
Prepared remarks (J. Christopher Donahue, President and Chief Executive Officer):
Thank you, Ray. Good morning. As of today, we have officially changed our name to Federated Hermes, Inc. and we are unveiling an updated corporate identity next week, focused on a commitment to responsible investing to achieve financial outperformance. The new name reflects the combining of two active management firms, Federated Investors, Inc. and Hermes Investment Management.
Federated Hermes offers world-class active investment management and engagement services across a wide range of asset classes for investors around the world, guided by the conviction that responsible investing is the best way to sustainable wealth creation. Beginning on Monday, we will trade under the ticker FHI.
Question (Brian Bedell, Deutsche Bank): Great. Thanks. Good morning, folks, and congrats on the new name. Maybe just to start off with that, on the name change, maybe, Chris, if you just want to elaborate a little bit — right now instead of doing this when the deal closed. And then if you can just talk a little bit about the new marketing program, what you intend to do specifically and what the expense impact you expect for 2020 on — with that new marketing program?
Answer (J. Christopher Donahue): Yes. In terms of the timing of the name change, the excitement and all of the work that was done to get the deal together was also one of the reasons it didn’t happen right away. There was a lot that goes into changing the name of two organizations whose lifetime has been under a different nomenclature. We were able to combine though the fiduciary heritage of Federated and the ESG and responsible investing activities of Hermes, and felt that once we got all organized as funds on the block where we are selling them with a responsible investment office opened at Federated, with the integration of ESG into money markets at Federated, and then well on the way in several other of our investment management teams, and with the acceptance that the clients have had, we felt this was a very good timing.
Behind the curtain, in terms of internal, we announced all this internally last year at our sales conference, which is next week, wherein we have the 230 high powered engine machines coming into Pittsburgh, and we felt this was a perfect time to launch that into the marketplace, so it was both an external and an internal decision making.
Thomas Donahue (Chief Financial Officer): Yes. On the expense side, you know, it’s a forecast. So — it’s a forecast, but somewhere around $5 million advertising, signage, [Technical Issues] business cards, names of products. There’s a lot that’s involved in doing that and we look forward to moving forward Federated Hermes.
Deborah Ann Cunningham (Executive Vice President and Chief Investment Officer of Global Liquidated Markets & Senior Portfolio Manager): [Speech Overlap] This is Debbie. Can I also mention, basically the full integration of ESG analysis into our credit review process for all of our liquidity product, that was something we had been driving toward since the 2018 acquisition and accomplished that in 2019. That was evolutionary, not revolutionary; it will continue to develop, but we have absolutely included from the analysts and the engagers the information that’s coming out of the Hermes proprietary model and used that within the qualitative aspects of our credit analysis process for our money market fund.
Question John Dunn (Evercore ISI): Good morning. Thank you. I wonder, if you could give us a little more flavor of the Hermes sale discussions with institutional clients, and maybe how big an opportunity that could be, and if we could start to see more of an impact in the second half of 2020?
Answer Saker Nusseibeh, Chief Executive Officer-Hermes Fund Managers Limited): Thank you. So we continue to see a strong interest in our products for institutional clients. Again, to remind everybody, before the majority stake was acquired by Federated, we already had some marquee clients in the United States. So although we weren’t big, it’s not as if we were not known, but these sales, as you well know, typically take some time to come through, but we’re seeing a lot of positive reception, some to our fixed income. It might surprise some of you, but some to our US small cap and certainly to our SDG fund as well. So we are hopeful that this will begin to come through in this year and translate into assets.
- Christopher Donahue: And I would add a couple of things. We are adding to our institutional sales force here, it’s like one-sies, two-sies, but it is because we have a lot of confidence in these mandates. And at the macro level, one of the reasons is exactly the reason for the combining of the name. You bring Federated’s fiduciary heritage, which is a drive for performance, an alpha hunter and active manager with Hermes, who shares exactly those views along with a lifetime commitment to responsible investing. This is the overall message that we are bringing to the institutions and we think we are able to bring it in a unique way, because of the focus on the fiduciary and because of the beauty of the engagements the way Hermes has done it.
And the way Hermes has done it that makes it unique is it is a third-party effort. So there is a group that does EOS that sends the 40% team into various companies to get data that looks forward into what is going to happen in addition to taking all the data that’s backward looking as to how people did do. And these kinds of things are good messages in the institutional world. And if you have the numbers to go along with it, we think it makes for an excellent project.
*Trading under the ticker FHI beginning on Monday, February 3, 2020.
Invesco Ltd (IVZ) Q4 2019 January 29, 2020 Earnings Call
Question Sean Colman, Bank of America Merrill Lynch): Just going back to the product offerings. In 2019, we saw a significant pickup in the industry ESG flows. And it looks like more of a — there’s going to be more focus on this from competitors and investors. So I’m just wondering what your current offering is there and what your plans are going forward.
Answer (Andrew Ryan Schlossberg, Senior MD & Head of the Americas): Yes. It’s Andrew Schlossberg. I’ll jump in on the first instance. We’ve been, like many others in the asset management space, investing in the ESG space for some time. So our first focus really is making sure that sustainability and other ESG factors are incorporated into our active strategies as a factor that they look at. Most of the demand we see from clients, including in places like Europe, is for inclusion portfolios, not exclusion. So our first protocol is to make sure that we’re contemplating that. Where we anticipate seeing some increased demand, though, is in ESG portfolios and things that — that’s the core focus of it. We’ve incubated and put strategies in place across our entire platform. One area of note and then maybe Marty can pick up more fully, but in the ETF space, in the U.S., we’ve been sort of running sustainability focused ETF since 2005. And they’re in place. We have, I think, 6 or 7 of them, and we’re starting to see more demand. We expect to see more demand into next year. And likewise, in Europe, we listed a set of strategies last year to address the same set of challenges and opportunities.
Answer (Martin L. Flanagan, Invesco Ltd. – President, CEO & Director): Yes. And look, I — there is — if you look at where the impact is, where it’s been real, it has been on the continent. If you’re not absolutely engaged and focused on ESG inclusion, you have a real business problem regardless of what you think about it, and you can tell in the United States, where, from my perspective, it’s been more of a (technical difficulty) pickup. So it is definitely a real opportunity. And really, frankly, something that is going to be absolutely pervasive, I’d say, throughout the whole industry globally, which is a good thing. Yes, just, I mean, in Europe, in particular, I mean, we just launched some new ETFs that were ESG focused in Q4. I know we have a bank loan capability that’s all ESG focused, that is also being sold and doing well. And the big solution win that we had in the U.S. that we talked about was actually focused around ESG offerings. So we have the capabilities to deliver on ESG, and we’re actively pursuing those.
Legg mason, Inc. (LM) Q3 2020 Earnings Call January 29, 2020
Question (Brian Bedell, Deutsche Bank): Yes, OK. No, that makes total sense. And then maybe just a follow-up on, obviously, ESG is becoming an increasingly hot topic recently. What are you hearing from clients in terms of the demand for your products? How do you guys feel that you’re positioned if the flow organic growth situation turns in favor of ESG in the near to intermediate term?
Answer Joseph A. Sullivan, Chairman and Chief Executive Officer): Yes, Brian, I don’t think we — well, first of all, two things: One, we think — when we think about ESG, at least I think of it, and I think we think of it in two aspects. One is how do we incorporate ESG into what we do as a business and also how do we think about ESG in terms of how we run the company. So there are two kind of separate components. When you think about how we operate as a business, I think you know this, but we’ve — because we’ve said it before, but all nine of our affiliates are PRI signatories. We’ve got already just under $300 billion of long-term assets that are in investment strategies that do utilize ESG factors. And that’s — and that data is a little bit stale, so it’s probably a higher number at this point, but that’s about 43% of our long-term AUM or thereabouts. I would tell you that I think all of our affiliates use it differently. It’s not nice to have. It’s not a let’s kind of a check the box thing anymore.
The ESG factors and incorporating that in the investment process is really, I think, table stakes these days. The good news is, we’ve got, all of our affiliates as I said are PRI signatories. And I think about, in particular, ClearBridge in the U.S. and Martin Currie internationally, who really are leaders in this regard. And so — and who are known in the industry for that. So it’s an exciting time. It’s an important time as it relates to the investment side and how we run our business. And then, at the Legg Mason level, we also think about ESG in terms of how we run the company. And there are a number of dimensions that we think about when we think about ESG. We think about, are we governing with responsible corporate practices?
What kind of employee experience are we providing? What is our commitment to sustainability and to the environment as a company? What is our community engagement? And then, one of the most important priorities, not — clearly a strategic priority for us is our commitment to diversity and inclusion. And we are very active in that front. We have actually been recognized in some regards. We have a wonderful Chief Diversity Officer, who has made a real difference with us over the last year-plus that she’s joined us. So we — ESG is just part of both our business and the way we run our company now.
