We strive to offer our clients the best funds and investment ideas on the market, whether from us or other firms. Our external fund selection teams analyse, select and aim to provide our clients with access to the best external long-only active and passive, as well as hedge funds managers outside Lombard Odier.
Our analysts’ depth of knowledge and our proprietary selection process allows us to exploit opportunities covering the entire spectrum of asset classes, closely monitoring and identifying the best managers in their respective sectors.
Our own ‘PrivilEdge’ range of funds allows us to partner with leading external managers on differentiated strategies that meet specific client needs.
ESG and sustainability are important elements of our manager selection and monitoring. At Lombard Odier, we believe sustainability will be increasingly important to long-term investment outcomes for our clients as it is already one of the most important drivers of risk and return.
When appointing all new managers, we look for partners who are aligned with our philosophy. As part of our extensive due diligence process, we carry out in-depth analysis of their approach, both through publically available material, and in detailed discussion and site visits during the selection process. We review external managers’ investment strategy and ESG philosophy, as well as their approach to integration. We assess the quality of their policies and how their ESG approach is implemented in their portfolio management process. We look for robust governance and oversight of their investment approach, including ESG incorporation, as well as risk management.
We seek to ensure our partners are focused on the ESG issues that are most material to the investments they are making. We also look to ensure they have the appropriate level of expertise on their team, and that these resources are adequately integrated with their investment teams. We also asses the data they are using to ensure it is both robust and of high quality. We also look at how our external managers share their knowledge with the wider community through their promotion of responsible investment and industry engagement.
We assess all of this at the firm level, and we also look in detail at how their approach is integrated into the specific products that we select for our clients. We aim to agree with managers how ESG data will be used in their investment process, and understand the likely impact that will have on the decision making process and portfolio outcomes.
We assess their approach to exclusions and SRI restrictions and, as far as possible, we ask them to respect our two Group-level exclusions: controversial weapons and essential food commodities.
We also expect to see best-in-class transparency when it comes to reporting.
In addition to broad integration of ESG and sustainability into investment products, we also look for managers with a particular edge in providing thematic and impact investment solutions. Our clients are increasingly demanding investment solutions that are positioned to mitigate risks and capture opportunities created by the transition to a sustainable economic model. Many of our clients also aim to use their capital as a means of fostering economic and social progress, and to combine financial return with social impact.
We regularly monitor our external managers across all asset classes to ensure they continue to deliver – and ideally improve – on their ESG and sustainability approach. This is typically a bi-annual process, but we will also conduct a full, in-depth review where we see a significant event affecting one of our external partners or products (ie a manager change or a performance issue).
This review will include an assessment of the effectiveness of the governance and oversight functions, as well as the stability of their approach to integration, the experience and expertise of their team and whether the appropriate resources are in place at the firm level. We look at whether their sustainability and ESG resources are adequately integrated into the portfolio management team.
We review the portfolios’ ESG characteristics, and their compliance with exclusions and restrictions, including looking at any examples of controversial investment decisions. We also assess managers using out own proprietary sustainability scoring methodology and encourage them to improve their scoring. During 2019, we introduced an annual questionnaire to help us assess the evolution of external managers’ sustainable investment practices. This was initially applied to our PrivilEdge funds and we intend to carry out this exercise on an annual basis going forward, and to expand the scope of managers covered.
We also review the ongoing work our partners carry out to promote sustainability and responsible investment by assessing their engagement with the wider community and activities around investor education, for example.
As part of our own stewardship approach, we believe it is important to ensure our managers as setting and delivering to high standards on ESG and sustainability. We also engage with them to encourage them to develop and improve where we identify any area of weakness.
Where we conclude that an external manager is not meeting the high standards of ESG and sustainability incorporation we expect, they would be classified by us as non-sustainable. As a result, they would not be applicable for selection in a sustainable discretionary mandate, for example.