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Alquity Investment Management Limited

PRI reporting framework 2020

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.

The Alquity investment process emphasises not only financial, but also material non-financial factors.

Through the incorporation of Forward-Looking Environmental, Social and Governance (ESG) analysis we assess management ability, practices and investment values. This results in portfolios that capture long-term themes, via transparent companies, with effective management who are aligned with shareholders.

We rate all stocks using our proprietary process from A-E and only invest in stocks that achieve an A-C rating. 

We engage using our Key Progress Indicators which are based upon supporting the 10 principles of the UN Global Compact

In turn, these outcomes allow us to generate significant conviction and therefore enhanced risk adjusted financial returns. Moreover, they mean that our portfolios are responsible by construction – we will not own companies whose investment values are fundamentally incompatible with our process.

We additionally contribute to each economy by donating a minimum of 10% of our revenues to development projects where we invest, supporting some of the poorest and excluded in society whilst helping develop sustainable economies in alignment with the UN SDGs.

 

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]

Our investments are responsible as we incorporate ESG factors into our investment process in order to generate deeper insights and help deliver sustainable, long-term returns.

This is differentiated from “sustainable investing”, “impact investing” or ‘”socially responsible investing”, which may set financial returns as a secondary consideration, subordinate to social or environmental goals.

We actively support the principles enshrined in the UN Global Compact. Through focusing management attention on all stakeholders and the risks and rewards, we are supporting the actualization of the Compact’s principles into business practice.

ESG issues have the potential to create and destroy long-term shareholder value, presenting risks across a company’s entire value chain, from supply disruptions and labour disputes, to large scale industrial accidents and product safety concerns. Moreover, these insights offer a broader, often less-scrutinised perspective into management behaviour and efficiency.


RETURNS
We believe that a focus on corporate governance and minority shareholders is representative of a more efficient business, able to adapt more successfully to economic, environmental and technological changes.
We therefore expect such firms to trade at higher multiples and create greater value for all stakeholders over the long-term. Conversely, those companies that pollute or pillage their environment do not have long-term sustainable business models, and thus are more likely to destroy shareholder value over time.

Of equal importance, we consider that detailed, forward-looking ESG analysis enables us to identify early signs of internal changes in a company. This is ahead of the impact on earnings and identification by other investors, and thus ahead of a share price re-rating or de-rating. It is therefore the momentum in these factors, as well as the absolute standards, which drive our allocations.

RISKS
MSCI describe ESG issues as “quiet storms that reconfigure the financial landscape when they hit landfall”. This is an accurate premise; detailed analysis of ESG factors enables us to discover potential problems that may be submerged for many years, before suddenly erupting and destroying value.

By successfully avoiding companies with high ESG risks, we expect to generate lower volatility for investors. This is because those companies that are demonstrably resistant to ESG shocks can better mitigate the downside risks, both short and long-term. This makes disclosure on how companies manage their ESG risks all the more critical, because it can help capture investor interest and establish the long-term value of ESG management.


By focusing on firms with tangible evidence of appropriate values and judgement, we can generate greater conviction and trust.


This allows us to invest earlier, and to better assess the interaction between firm level and macro level dynamics.

 

ESG IN THE INVESTMENT PROCESS
We do not use forward-looking ESG analysis as a pre, post or ad-hoc screening. Rather, it is a fundamental and fully integrated part of our investment process, carried out alongside macro and financial analysis by our investment team.

At the macro level, we consider the quality and potential for change in governments and institutions. This is because whatever the underlying development, cyclical and company-specific forces; effective and inclusive policy and legal frameworks play an important role.


Our ESG analysis, however, is centred at the corporate level. Given our investment approach is conviction based, we have to understand the ability of management to execute on their business plan, monetise opportunity and correctly manage risk through the cycle. It also means there must be sufficient transparency and disclosure to analyse the company in full.


Specifically, we look at behaviours and practices across the firm in the context of global and regional best practice. 
Following this analysis, our overall view on the quality of ESG on a forward-looking basis is then summarised on a scale from A (excellent) to E (fail). Our portfolios only include stocks graded A-C. To be clear, this means that we will only invest in firms where there is satisfactory quality and alignment of management. 

LINK TO COMPANY VALUATION
Our forward-looking ESG and material non-financial analysis provides a holistic view of the company’s current position and future prospects that purely financial analysis cannot provide. This informs our valuation of the company and our conviction on the likelihood of the company being able to monetize future opportunities and manage business risks. 
To make a contribution to the firm valuation, the ESG/Non-financial factor must have a tangible impact on a core business function. Either improving its efficacy or reducing its cost so that the business generates greater revenues and profits. The two most common examples we see are:
1.    Reducing risk: increased confidence in management capability and behaviour helps reduce the uncertainty with delivery of future profits allowing us to assign a higher valuation than that of the wider market. 

​2.    Increasing growth: In many of the markets we invest, structural growth drivers and cyclical positioning can mean certain sectors can grow exponentially. Our goal here is to find the companies that will capture this growth ahead of their competition. Non-financial factors playing out through attributes such as company reputation, staff skills and service or product quality enable companies to capture more customers, retain them longer or sell at higher prices.  

COMPANY ENGAGEMENT AND VOTING
Our active engagement policy supports a continuous improvement culture within our holdings. This not only promotes progress in line with the UN Global Compact and UN Sustainable Development Goals but, from our experience, leads to material improvement in business performance and long-term investment returns.
Our approach is pragmatic, and so is best reflected through the real examples we have provided, showing how we work with companies to improve their ESG behaviour.
We use the services of ISS to implement our active voting policy. They provide a recommendation for each voting item, at each meeting for each company and an explanation of their view. We review these, and undertake further research or engagement with the company if necessary. We then instruct ISS to vote in line with the decision we have reached

 

 

 

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk (Private)


SG 02. Publicly available RI policy or guidance documents

 

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

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

URL/Attachment

02.3. Additional information [Optional].

A NEW WAY OF INVESTING
Alquity is an asset management business that connects investors to their investments and to social progress in order to deliver better returns for all.
Our funds deliver attractive risk-adjusted growth over the long-term via a high conviction, fundamentally driven process.
This approach emphasises not only financial analysis, but also material non-financial factors, which incorporates forward-looking ESG analysis to assess management capability and values. This results in portfolios that play long-term themes via transparent companies, with effective management who are aligned with shareholders.
Alquity funds are therefore responsible by construction, targeting consistent out-performance whilst contributing to long-term growth. This philosophy resonates across the broader business; we encourage fund manager engagement and are happy to share our analysis.
Further, at the corporate level we reinforce that social progress should drive financial success by donating a proportion of our management fees to development projects in the regions in which we invest. In this way, our business aligns the values of investors, employees, holdings and communities.
We believe these shared values are key to achieving enduring financial success.

Our transforming lives programmes have transformed over 30,000 lives through donations which have now exceeded $1m.


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.

Alquity Investment Management has a conflicts of interest policy which records the services and acitivites in which a conflict of interest may arise:

1) Wherever a conflict of interest is identified, a Senior Manager will be allocated responsibility of managing the firm’s arrangements. 

2) All staff are required to identify actual or potential conflicts of interest as they arise and record them on the conflict of interest record sheet and report them to the Compliance Officer. 

3) The Compliance Officer will maintain a conflicts of interest register.

4) All senior staff have to confirm completeness of the register of interests annually including all stock investments held personally or on their behalf.

5) The Board approves the conflicts of interest policy annually. 

 

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios (Private)


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