Gam Investments has unveiled the debut fund in its new line up of ESG products which it hopes will help attract flows back into the business.
The sustainable local emerging bond strategy, managed by Paul McNamara and Gam’s emerging market debt team, will look to generate long-term financial returns by investing in a way that is “sensitive to the impact decision making may have on society and the environment”. It is the first in a range of green strategies the firm plans to launch in 2021.
The new investment approach was developed in partnership with VBV-Pensionskasse, an Austrian specialist pensions fund, who has already committed a “three-digit million investment” into the sustainable fund.
Gam highlighted ESG and sustainable investing as a key part of its future growth strategy in its Q3 results last year which revealed its existing strategies had continued leaking cash.
As part of this effort it recruited Stephanie Maier from HSBC Global Asset Management to fill the newly created role of global head of sustainable and impact investment in December.
“At Gam, we are listening to the clear client demand for more strategies focused on sustainable investing,” Maier said, commenting on the fund launch.
“The sustainable local emerging bond strategy combines the benefits of using a well-established ESG benchmark, with the opportunity to benefit from active management and expertise of Gam’s emerging markets bond team.”
Gam Local Emerging Bond to serve as a template
The fund will have exposure in around 15 to 25 emerging and frontier markets, focused around 10 very liquid core markets and 100 to 150 bonds and FX forwards.
Its process will mirror the strategy of Gam’s long-running local emerging bond strategy, which assesses developments in the US, Europe and China to establish up to five top-down global themes which determine country selection, along with specific return and risk driver preferences.
But the new strategy combines a positive tilt towards sovereigns with higher environmental, social and governance (ESG) scores, using the JP Morgan ESG GBI-EM GD Index, which uses research from Sustainalytics and RepRisk, with Gam’s proprietary investment process incorporating ESG factors for active allocation within the index tilts.
McNamara and his team will also make use of the “Crisis Cycle Filter” which captures the interaction between core ESG factors and nine traditional macroeconomic variables which are considered to be early indicators of financial crises, such as falling FX reserves or rapidly rising inflation to maximise their crisis avoidance strategy.
“As ESG factors become more efficiently priced in the sovereign debt market, we believe that now is the time for a strategy that targets both a specific ESG tilt and integrates ESG factors from a risk/return perspective,” said McNamara.
The move into the ESG market follows a troubled year for Gam. The Swiss asset manager expects to report an underlying loss before tax of approximately CHF 15m for the full year 2020, compared to a CHF 10.5m underlying profit for previous year. Back in April, coronavirus losses forced the company to cut its staff numbers by 16% and review its pay structure to make up for tumbling profits.
