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Adelphi Capital LLP

PRI reporting framework 2020

You are in Direct - Hedge Funds » Investment process

Investment process

HF 06. ESG data, research and other resources used

Please describe the ESG resources and tools used in your investment decision-making process.
Category of ESG
Reason for use
          We incorporate ESG data where helpful in our analysis - using Reuters and Bloomberg.
        
          We work closely with our brokers to effectively utilise their ESG research.
        
          We have met with ESG consultants to better understand best practices in the ESG decision-making process.
        
          
        
Select and explain how these resources are incorporated into the investment and risk management process?
Category of ESG
Investment/risk management process
Additional text (optional)
ESG data (proprietary, 3rd party, etc.)
          
        
ESG research (broker, etc.)
          
        
Consultants
          
        

HF 07. ESG incorporation into quantitative and fundamental analysis

07.1. Does your organisation uses quantitative analysis?

07.2. Does your organisation uses fundamental analysis?

Please indicate at which level ESG is incorporated into the analysis.
Fundamental approach
ESG incorporation
Outcomes and assessment/review

Please specify

          Risk analysis
        
          Better understand the inherent ESG risks a company can be exposed to and how management can effectively manage these risks. These can include 'thematic' ESG issues such as technological displacement, social trends (healthy eating, millennial consumer habits), how climate change can impact supply chain dynamics, negative publicity etc
        

07.3. Additional information [OPTIONAL]


HF 08. Changes to the RI incorporation process over the past 12 months

08.1. Could you please indicate whether there have been any changes to your RI incorporation process over the past 12 months (e.g. additional resources, information sources)?

08.2. If yes, please describe them.

          We have decided to use our brokers for third-party research and training. We have been conducting due diligence throughout the year.
        

HF 09. Integration of Active Ownership

09.1. Please select and explain how active ownership practices are integrated into investment decisions.

          To avoid potential conflicts of interest we outsource voting on our portfolio companies to Institutional Shareholder Services Inc. (“ISS”). Adelphi have agreed with ISS certain proxy voting rules that enable them to vote on behalf of our investment funds. Generally, where ISS recommends voting in line  with company management Adelphi will be in agreement (this typically reflects our conviction in the investee company management team). Where ISS recommends a vote against company management Adelphi will review the decision before confirming the direction of the vote. Due to client confidentiality of our investment funds we do not publically disclose the voting records of our clients except to our underlying investors who request it. We engage the ISS ESG offering.
        
          We actively engage with company managements where we see the risk of potential shareholder value dilution or to the long-term growth prospects of a company. We seek to have a regular dialogue with the managements of our portfolio companies. We believe that through continual engagement we can better understand the strategies and challenges faced by our portfolio companies. We will engage either directly, through company meetings at our offices, through conferences organised by third parties or through collective forums such as the Investor Forum. Engagement takes place before, during and after investment in a portfolio company. Indeed, many of the companies in our investment universe have been known to the portfolio managers for over 25 years.
        
          If we deem it to be in the interest of shareholders we would consider a shareholder resolution. Shareholder resolution is typically handed by ISS, our outsourced proxy voting provider. ISS, will inform us of upcoming shareholder meetings and through ISS we will participate in shareholder resolutions.
        

HF 10. Examples of ESG risks/opportunities in investment decisions

10.1. Please provide examples of where ESG risks and opportunities were incorporated into the investment decisions over the past 12 months.

Hedge Funds Strategy
Equity Hedge
ESG factors
Governance
ESG risks/opportunities
          In Q2 2019 Scout24, a leading German online classifieds player active in the real estate and auto verticals, was the subject of a bid from private equity which the management and Board recommended to shareholders.
        
Financial risks
          We felt the offer substantially undervalued the company and was not in the best interests of shareholders.
        
Scope and process
          We engaged with the management and the Board questioning their recommendation and voted against the offer.
        
Outcomes
          Ultimately, the bid was unsuccessful and we continue our dialogue with the Board including meeting with the chairman to recommend his resignation. We have subsequently attended the AGM in person to ensure that a strong message was sent to the Board regarding its conduct and to successfully secure the nomination of a new independent Board member in place of a nominee put forward by the company.
        
Hedge Funds Strategy
Equity Hedge
ESG factors
Governance
ESG risks/opportunities
          We have had multiple Board engagements with our longstanding position Schibsted in the recent past over issues such as its dual-voting share structure, the influence exerted by its major shareholder and management’s investor communication policy.  This has led to a number of meetings with both the chairman and the CEO.
        
Financial risks
          In early 2019 the company proposed a significant corporate restructuring including a spin-off of many of its most valuable businesses into a separate listed company. Whilst supportive of this strategy of this in principle, we felt the way in which it was being conducted was not the optimal solution for shareholders.
        
Scope and process
          We had multiple interactions with senior management via meetings and phone calls. We also wrote a letter to the company's entire Board of Directors, rather than just to the chairman or executive management.
        
Outcomes
          The spin off took place but we continue to engage with the board and recently visited one of their companies in Paris to directly advise the management.
        
Hedge Funds Strategy
Equity Hedge
ESG factors
Governance
ESG risks/opportunities
          Since becoming significant shareholders in Adidas, we have had regular interaction with the CEO and CFO, visiting the company’s headquarters and maintaining a regular dialogue with their investor relations team.
        
Financial risks
          We had questions relating a new remuneration/incentive plan which management asked us to support.
        
Scope and process
          We held a conference call with management to better understand the KPIs and deliverables behind the plan, making it clear to them that we required clarity and specificity in order to vote for it.
        
Outcomes
          We became comfortable that the plan posed no risk to shareholder value.
        
Hedge Funds Strategy
Equity Hedge
ESG factors
Social|Governance
ESG risks/opportunities
          Just Eat appointed a new CEO in late 2017 and over the following year we became very dissatisfied with his strategy, investor communication and management style, which was leading to the departure of various managers that we knew and respected.
        
Financial risks
          The fundamental value of the business was being eroded - managment needed to invest more heavily in delivery and drive growth in certain markets.
        
Scope and process
          In Q3 2018 we had a meeting with the chairman to express our dissatisfaction with the situation.
        
Outcomes
          In 2019 the CEO was dismissed.
        
Hedge Funds Strategy
Equity Hedge
ESG factors
Environmental
ESG risks/opportunities
          Carbon omissions of an airline in our portfolio.
        
Financial risks
          Risk of government intervention to regulate carbon omissions.
        
Scope and process
          Discussed carbon offset program with company management and their strategy regarding omissions relative to peers.
        
Outcomes
          We felt comfortable that the airline's carbon reduction strategy was in line with best practise and conduct ongoing monitoring to ensure this.
        

10.2. Based on your example(s) provided above, please specify whether the incorporation of ESG factors affected the risk-adjusted returns of your hedge funds.


HF 11. Derivatives products and ESG impact

11.1. Do you use derivatives instruments as part of your hedge funds strategies and/or Funds of Hedge Funds?

Please select all the applicable categories of derivatives used.
Listed/OTC
Category of derivatives

11.3. Please explain whether and how these derivatives impacted the risk-adjusted returns of your hedge funds investments?

Impact

Outcomes

          We do not monitor the impact of derivatives - we are an equity long/short fund and only use derivatives to gain underlying exposure to equities (short or long).
        

11.4. Please indicate whether the use of derivatives triggered ESG risks/opportunities at the fund level?

11.5. Additional information [OPTIONAL]

          
        

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