Stafford’s overall investment philosophy can be summarized as follows:
• Make good investments
• Be good to deal with and act with integrity
• Be innovative in creating value
• Profit from knowing what is really going on
As we set out in our Responsible Investment Policy, Stafford’s management and staff are convinced that ESG factors impact the environment in which we invest and thus our core business. As a result, it is of paramount importance that we explicitly recognize and evaluate the ESG-related risks and opportunities and manage these in a prudent and methodical manner.
We recognize our responsibility as an investor to contribute to a more sustainable financial system by taking a long-term, responsible approach across the private market funds and assets in which we invest. We pay particular attention to how our investment process can positively contribute to promoting greater ESG outcomes by reducing agency risk through our rigorous process of oversight, seeking control and greater access to underlying investee entities, both in terms of our due diligence process and how we manage and monitor our investments over time.
We are stewards of money entrusted to us by our institutional clients, who in turn manage money on behalf of their investors. As active investors, we play an important role in ensuring that our investments uphold commonly accepted standards of environmental protection, human rights, and good governance in a way that will enhance and underpin the financial returns that our investors expect of us over the long-term. In this context, Stafford has been an early signatory to the PRI, which plays a central role in our ongoing efforts to integrate ESG across our investment process.
Finally, Stafford believes that successful and responsible investments with comprehensive consideration of ESG-related risks and opportunities ultimately depends on the knowledge, convictions, and beliefs of the people running the investment process, and therefore is committed to corresponding recruitment, talent development, organizational learning, and training.
In implementing our beliefs, as a PRI signatory, Stafford is guided by the 6 principles in all of our business lines accordingly, with a particular focus on implementing PRI #1, i.e., the integration of ESG-considerations into the investment process.
Engagement is at the heart of embedding Stafford’s ESG beliefs into our investment processes, both internally across business lines and staff members, and also externally as a fund-of-fund manager with the underlying GPs and of course, with our clients and pension fund investors. We recognise that we play an important role in improving the ESG standards that apply across the investee entities and GPs who we invest with, as such we regularly ask them questions about ESG (both formally through a bi-annual survey and informally through face-to-face meetings and correspondence), testing their approaches and continually looking for ways to improve outcomes is of tantamount importance to us for both pre-investment and post-investment monitoring and oversight.
We note that not all of the underlying investment managers are at the same place in terms of acceptance and integration of ESG issues into core processes, but we prefer to work with these managers/GPs and to engage with them to improve standards rather than divest or narrow the opportunity set to only ESG leaders. It is our view that this will not only produce better risk-adjusted returns for our investors over the long term, it will also help to raise standards across the real economy more broadly.
Stafford is focussed on secondary fund acquisition transactions (“secondaries”) which provide the benefits of limited/no blind pool risk when making investments. Therefore, we usually have a rather good information base when making investment decisions which also allows to assess ESG factors in addition to real economy impact before committing to an investment.
For example, in Stafford Infrastructure’s strategy is to acquire interests in core infrastructure funds from existing investors via the secondary fund market. One of the private funds in this strategy may also invest up to 20% in late-stage primary funds and/or directly alongside quality managers as co-investments. With this strategy Stafford Infrastructure targets 8-9% net return with a 5% cash yield component, diversification by geography (60% Europe, 20% North America, 20% RoW), asset type, investment manager, and (past) vintage years, and overall 8-12 investments in target infrastructure funds.
ESG factors are also considered via exclusion criteria which have to be tested for materiality (e.g. nuclear power, prisons, military) and as integral part of our investment process according to Stafford’s RI Policy that has been mentioned before.