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Veritas Asset Management LLP

PRI reporting framework 2019

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

​We look for good quality companies (those that generate high levels of cash, have high barriers to entry and predictable deployment of cash) and we remain patient to buy these companies at the right price (typically, we aim for a 15% p.a absolute investment rate (IRR) of return over a 5 year rolling period). The more predictable a company, the easier it is to model, the higher the likelihood to make the desired return. The first part of the process therefore is identifying quality companies to add to our Universe List.  The analysts focus on a list of stocks that have been generated in a number of ways including themes (looking for tailwinds which will ensure cash generation will continue into the future) and screening (looking for good quality companies that for some reason look undervalued). These are companies that at first sight look as if they may be attractive long term and warrant further analysis. The analyst will analyse the company in depth, including considerations that may affect the company sustainability. Given we are looking for predictability, anything that may jeopardise this is important. A company can be rejected for a number of reasons including aspects relating to ESG.

 

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

The key elements are as follows;  1) seek good quality companies and place them on our Universe List. Here we consider ESG factors. 2) Remain patient to buy the company at the right entry point. Sustainability factors are also considered at this stage of the process. The Universe List consists of approximately 250 companies of which the majority we seek the 15% p.a IRR. Companies with a 1 rating have the greatest predictability and better corporate governance. For these businesses we only seek a 12.5% IRR i.e. there is a lower margin of safety sort due to less risk factors. The majority of companies are rated 2 and a 15% IRR sort. Companies with a 3 rating are those whose corporate governance may leave some concerns e.g. Cayman Islands holding company or the company is more cyclical in nature and as a consequence we look for a 20% IRR.

01.6. Additional information [Optional].

          The investment policy's for our pooled funds are outlined in the documents titled; "Veritas Funds plc prospectus - Dated 1 October2018", "Veritas Common Contractual Fund Prospectus with Supplement 25 May 2016" and "Prospectus of The Real Return Funds plc - Dated 13 July 2017." Our responsible investment approach which governs the pooled funds are outlined the policy documents titled; "VAM LLP - Global ESG Policy", "VAM LLP Asian ESG Policy - Nov 2017", "VAM LLP- Global Voting Policy" and "VAM LLP Asian Voting Policy - Dec 2017." The policy documents explain our responsible investment approach and how this enables us to execute our investment objective outlined in the investment policy. In addition, a number of the investment management agreements (IMA) for the segregated mandates we manage, incorporate responsible investment as an standalone section.
        
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SG 01 CC. Climate risk

01.6 CC. Indicate the climate-related risks and opportunities that have been identified and factored into the investment strategies and products, within the organisation's investment time horizon.

The quality characteristics as we would define them, are not found in those companies that have a high level of risk related to climate change factors. Notably metals, mining, oil, coal and heavy industries etc. This one of the reasons the portfolios have low carbon footprints. In the case of the Asian strategy we currently have a theme titled "Green Asia”, where we are looking for ideas related to renewable energy or those which benefit from the Chinese governments focus on levels of pollution. In the case of the Global Strategy, we hold a windfarm developer based on the improved economics behind this source of electricity and the company disinvesting totally from its less economical oil/gas business.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

01.9 CC. Indicate whether the organisation publicly supports the TCFD?

Explain the rationale

We don't publicly support the TCFD, however we engage with companies to encourage disclosure. We are assessing formally signing up.

01.10 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

01.11 CC. Describe how and over what time frame the organisation will implement an organisation-wide strategy that manages climate-related risks and opportunities.

We have a low exposure to climate related risks across all portfolios and already encourage disclosure from companies where it is needed. We are currently assessing the various options to introduce an additional strategy that is both additive to the investment process and client reporting.

1.12 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          Not Applicable
        

SG 02. Publicly available RI policy or guidance documents

New selection options have been added to this indicator. Please review your prefilled responses carefully.

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

02.3. Additional information [Optional].

Our investment policy documents for ESG and Proxy Voting are not available on our website. However, they are available to clients and on request to prospective clients.


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

VAM LLP have implemented policies where conflicts of interest may occur relating to; Fair Allocation, Best Execution, IPOs/New Issues and Cross trades. All of which are  monitored by the Compliance team. 

The firm was subject to its first regulatory visit by the FCA in April 2015, who were conducting a sectoral review on Fair Allocations of Investments within Asset Management. We received the FCA’s response letter to that visit and can advise that there were no material risks or deficiencies identified. 

 

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within portfolio companies.

04.2. Describe your process on managing incidents

We look for predictability, therefore a change in the way management deploys cash or changes to the management team can be viewed as red flags e.g. if someone instrumental to success of the business steps down we may exit our position and assess new management. The introduction of unrealistic hurdles to incentive plans is a red flag. We prefer management to be rewarded over the long-term time and have incentives linked to the interests of shareholders. Typically KPI's are 2-3 years whereas shareholders are much longer term.


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