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AMP Capital Investors

PRI reporting framework 2019

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You are in Indirect – Manager Selection, Appointment and Monitoring » Selection

Selection

SAM 02. Selection processes (LE and FI)

02.1. Indicate what RI-related information your organisation typically covers in the majority of selection documentation for your external managers

Your organisation’s investment strategy and how ESG objectives relate to it

ESG incorporation requirements

ESG reporting requirements

Other

No RI information covered in the selection documentation

LE

Your organisation’s investment strategy and how ESG objectives relate to it
ESG incorporation requirements
ESG reporting requirements
Other
No RI information covered in the selection documentation

02.2. Explain how your organisation evaluates the investment manager’s ability to align between your investment strategy and their investment approach

Strategy

Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements

Assess the quality of investment policy and its references to ESG

Assess the investment approach and how ESG objectives are implemented in the investment process

Review the manager’s firm-level vs. product-level approach to RI

Assess the ESG definitions to be used

Other

None of the above

LE

Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements
Assess the quality of investment policy and its reference to ESG
Assess the investment approach and how ESG objectives are implemented in the investment process
Review the manager’s firm-level vs. product-level approach to RI
Assess the ESG definitions to be used
Other
None of the above

ESG people/oversight

Assess ESG expertise of investment teams

Review the oversight and responsibilities of ESG implementation

Review how ESG implementation is incentivised

Review the manager’s RI-promotion efforts and engagement with the industry

Other

None of the above

LE

Assess ESG expertise of investment teams
Review the oversight and responsibilities of ESG implementation
Review how is ESG implementation enforced /ensured
Review the manager’s RI-promotion efforts and engagement with the industry
Other
None of the above

Process/portfolio construction/investment valuation

Review the process for ensuring the quality of the ESG data used

Review and agree the use of ESG data in the investment decision making process

Review and agree the impact of ESG analysis on investment decisions

Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)

Review and agree manager’s ESG risk framework

Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives

Review how ESG materiality is evaluated by the manager

Review process for defining and communicating on ESG incidents

Review and agree ESG reporting frequency and detail

Other, specify

None of the above

LE

Review the process for ensuring the quality of the ESG data used
Review and agree the use of ESG data in the investment decision making process
Review and agree the impact of ESG analysis on investment decisions
Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)
Review and agree manager’s ESG risk framework
Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives
Review how ESG materiality is evaluated by the manager
Review process for defining and communicating on ESG incidents
Review and agree ESG reporting frequency and detail
Other, specify
None of the above

02.3. Indicate the selection process and its ESG/RI components

          The manager selection process draws on qualitative and quantitative inputs.  A number of tools are employed in the selection process including our consultant Willis Towers Watson's databases which provide our investment teams with access to manager information and global manager research. Manager meetings provide a wealth of insight and information on the manager's organisational framework, team, investment philosophy, processes and systems.    

For our RIL funds, each underlying manager may integrate ESG factors in different ways, as well as using external research providers for their ESG research. The RIL range has a long-term investment strategy recognising that broader environmental, social and ethical considerations, labour standards and corporate governance factors can impact long-term business success. The RIL range will invest through managers or in funds which have a demonstrable process for taking these matters into account. The process used for identifying prospective managers involves three key elements.  

> Assess managers based on investment and environmental/social/governance factors;  
> Exclude investments in areas of high social impact; and  
> Select the optimal combination of managers.
        

02.4. When selecting external managers does your organisation set any of the following:

ESG performance development targets

ESG score

ESG weight

Real economy influence

Other RI considerations

None of the above

LE

ESG performance development targets
ESG score
ESG weight
Real world economy targets
Other RI considerations
None of the above

If you select any 'Other' option(s), specify

For our RIL Funds in particular, the external managers need to demonstrate their ability to meet the requirements of the RIL Charter which is overseen by the RIL Ethics Committee. Further details are provided in the RIL Charter which is available at the following link:

http://www.ampcapital.com.au/AMPCapitalAU/media/contents/Documents/RIL/RIL_charter.pdf?ext=.pdf

02.5. Describe how the ESG information reviewed and discussed affects the selection decision making process.[OPTIONAL]

          RIL: AMP Capital's RIL range has a long-term investment strategy recognising that broader environmental, social and ethical considerations, labour standards and corporate governance factors can impact long-term business success. The RIL range will invest through managers or in funds which have a demonstrable process for taking these matters into account.  

The manager selection process used for identifying prospective managers involves three key elements:  
1. Assess managers based on investment and environmental/social/governance factors  
2. Exclude investments in areas of high negative social impact, and  
3. Select the optimal combination of managers.
  
Managers are primarily selected based on their investment credentials, process and performance. As we aim to construct a style-neutral blend, we also consider the style and risk diversification impact each manager will have on the overall portfolio. However, there is growing evidence that environmental, social and governance factors can give insights into a company's intangible assets, sustainability and long-term market valuation. Accordingly, the RIL range seeks out managers who meet the responsible investment criteria of the RIL Charter, and who are identifying companies that are leaders across industries on the ESG factors.  

At a minimum, a manager must be able to meet the fund's ESG screening criteria. Managers are also well-regarded if they apply sustainable and responsible investment criteria above and beyond these requirements, and if they actively participate in corporate engagement and corporate governance initiatives. 
 
The range of relevant ESG areas include:  
• Ethical considerations - including upholding fundamental human rights, and articulating and implementing a code of conduct  
• Labour standards - including implementing occupational health and safety regulations, adhering to the standards of the International Labour Organisation (ILO), providing safe and stable working conditions, and excluding child labour  
• Social considerations - including promoting indigenous relations and community involvement;  
• Environmental considerations - including efficient energy and resource use, and product stewardship, and  
• Governance considerations, including meeting corporate governance guidelines on board structures and remuneration.  
FDF and ipac: For the FDF and ipac Funds, AMP Capital selects and appoints external managers based on its own due diligence supplemented by the advice (where sought) and ESG ratings (where available) of our investment consultant Willis Towers Watson. As part of the due diligence process, we may typically ask the managers how they use ESG in their investment thinking to develop a more comprehensive view of an investee company's key business risks, how they approach corporate governance issues, and how both are related to overall management quality.  

Research and identification 
The team’s starting point when screening managers for inclusion in a specialist asset sector portfolio is to consider those managers recommended by our adviser partners – Willis Towers Watson, StepStone Group or KKR Prisma  and from the investment team’s own research. The team scrutinises and tests the research produced by its advisers, including comparison with internal views and research. Any inconsistencies or divergences of opinion are examined and discussed within members of the team to allow a cross-section of views and analysis to be explored and debated. 
Extensive analysis of consultant-recommended managers, and other managers identified and ideas developed through the discovery research process, is undertaken to isolate those which demonstrate what the team believes to be talented fund managers, with robust investment processes and strong alignment with AMP Capital’s philosophy. From here, an initial shortlist of potential candidates is formed. In evaluating these shortlisted managers, the investment team makes an assessment on the following criteria: 
> Clearly defined and consistently applied investment philosophy 
> Talented, experienced and sufficiently resourced investment teams 
> Sound and disciplined investment process  
> Proper governance and alignment structures and the quality of the parent organisation  
> Consistency between investment style/approach and investment philosophy 
> Scale/funds under management  

Track record 
In the case of RIL managers, demonstrated ability to manage ESG exclusions and systematically incorporate ESG research into the investment process 

Due diligence 
Those candidates who meet the investment team’s stringent criteria described above are then subjected to a formal due diligence process. This is performed by the relevant asset class portfolio manager and analyst within the investment team. The formal due diligence process can involve multiple meetings with the manager’s investment team in order to establish a more detailed understanding of the above-listed factors.  
The quantitative component of the due diligence incorporates examination of each manager’s portfolio composition, investment performance and the consistency of these with the stated investment philosophy and approach. Typically, by the time the fund manager is appointed, the investment team’s portfolio managers would have spent 20+ hours in face-to-face contact with its investment team, and would have put at least as much time into dissecting its portfolios and track record. Once the portfolio manager has determined his/her investment recommendation, it must be taken through the single sector governance framework, as described below.  

Governance of manager appointment process 
Ahead of finalising the recommendation to the Single Sector Investment Committee (Sector IC), the portfolio manager presents it in the draft form at the Investment Review Group. This group comprises all members of the Market Solutions team. Each team member is encouraged to critically examine every aspect of the recommendation through the lens of their own respective asset classes, to eliminate any residual blind spots that may still be present. This recognises the inter-connectedness between different asset classes, and enables more holistic examination of the investment thesis. The respective portfolio managers retain full ownership over their recommendation, including investment strategy, manager selection and portfolio construction and is free to take on or disregard any comments from the group. 

Responsibilities of the Single Sector Investment Committee (‘Sector IC’) 
This committee is responsible for approving all decisions regarding investment strategy, manager selection and portfolio construction. Sector IC approval is required in respect of adoption and changes in: 
(1) investment objectives, 
(2) investment strategy, 
(3) manager line up, 
(4) portfolio construction/manager allocations, and 
(5) for deviations of manager weights away from their target weight by more than the approved threshold. 
Sector IC noting is required for: 
(1) performance of funds and of their underlying managers, 
(2) summary of risk reports produced by the Risk Review Group, and 
(3) comments regarding any material issues that may exist at the manager level. 

Manager terminations 
There are numerous reasons as to why a manager may be terminated. In most cases, this happens in response to new developments which, in our view, point to a deterioration in the respective manager’s prospects of delivering on its investment objectives: 
> Departure of key investment talent who, in our best judgement, were the key contributors to delivery of solid investment outcomes 
> Excessive growth in funds under management, which in our view, can be expected to impede execution of manager’s investment strategy/trading 
> Amendments to the investment process which in our view, may weaken the manager’s investment proposition 
> Significant ‘drift’ of the manager’s portfolio characteristics from what we expect those to be, given our understanding of the manager’s investment philosophy, its key areas of expertise, its key sources of value add and its investment process. 
Severe divergence in performance versus expectations and significant organisational changes prompt an immediate review, but in our experience, these rarely lead to a termination - unless their nature suggests that the manager is no longer likely to meet return objectives going forward. 

Managers may also be terminated following a revision of the investment strategy for the corresponding Fund.  Investment strategy reviews tend to take place in response to significant shifts in characteristics of the underlying market and/or to changes in the Fund’s investment objectives. For example, pre-GFC our equities funds were focusing predominantly on strong stock selection.  During the GFC and thereafter, we have been seeking out managers with elements of macro (at the currency/country/sector and bottom up levels) and general thematics in their investment philosophy and process – with track records to match. 

* AMP Capital Funds Management Limited (AMP Capital) ABN 15159557721, AFSL 426455 is the responsible entity of the Responsible Investment Leaders (RIL) range of funds and the Future Directions Funds (FDF) and issuer of the Product Disclosure Statements (PDS) for these Funds and ipac asset management limited, ABN 22 003 257 225, AFSL 234655 is the responsible entity of the ipac funds (ipac) and issuer of the Product Disclosure Statement (PDS) for these Funds. To invest, investors will need to obtain the current PDS from AMP Capital before making a decision to acquire, continue to hold or dispose of units in the relevant Fund.
        

SAM 03. Evaluating engagement and voting practices in manager selection (listed equity/fixed income)

03.1. Indicate how your organisation typically evaluates the manager’s active ownership practices in the majority of the manager selection process.

Engagement

Review the manager’s engagement policy 1

Review the manager’s engagement process (with examples and outcomes)

Ensure whether engagement outcomes feed back into the investment decision-making process

Other engagement issues in your selection process specify

LE

Review the manager’s engagement policy
Review the manager’s engagement process (with examples and outcomes)
Ensure whether engagement outcomes feed back into the investment decision-making process
Other engagement issues in your selection process specify

If you select 'Other' option, specify

          RIL Funds range:  Discuss with the manager the historic interactions, engagement processes, ESG practices and performance, escalation processes and decision making through engagements.
        

(Proxy) voting

Review the manager’s voting policy

Review the manager’s ability to align voting activities with clients’ specific voting policies

Review the manager’s process for informing clients about voting decisions

Ensure whether voting outcomes feed back into the investment decision-making process

Review the number of votes cast as a percentage of ballots/AGMs or holdings and available rationale

Other voting issues in your selection process; specify

LE

Review the manager’s voting policy
Review the manager’s ability to align voting activities with clients’ specific voting policies
Review the manager’s process for informing clients about voting decisions
Ensure whether voting outcomes feed back into the investment decision-making process
Review the number of votes cast as a percentage of ballots/AGMs or holdings and available rationale
Other active ownership voting issues in your selection process; specify

03.2. Describe how you assess if the manager’s engagement approach is effective.

03.3. Describe how you assess if the manager’s voting approach is effective/appropriate

03.4. Additional information [OPTIONAL]

          Refer SAM 02.5 for further information.
        

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