External equity and fixed income investments
External equity and fixed income investments are managed by external asset managers. External asset management may be broken down into three distinct stages: the search for the new asset managers, the monitoring of the selected asset managers in the portfolio, and the monitoring of the underlying securities in the portfolio. The responsible investment perspective is factored in throughout these three stages.
The search for the new asset managers includes an assessment of the candidates from the responsible investment perspective.
The first stage, i.e. request for proposal (RFP) stage addresses asset managers’ responsible investment policies, which in turn acts as a starting point for the further dialogue. Most of the selected asset managers have in place a responsible investment policy and corresponding processes. The following areas, among others, are observed: how the asset manager integrates ESG criteria into their analysis and investment decisions, how responsibility is addressed at the corporate meetings, and whether the asset manager has signed PRI or intends to do so.
The second stage involves regular monitoring of the selected asset managers. An annual ESG survey is sent out to all external equity and fixed income asset managers in the portfolio. The survey addresses asset managers’ responsible investment policies as well as their stance towards ESG-related risks and opportunities from the long-term return viewpoint.
The third stage, i.e. monitoring of the underlying securities, entails both ESG analysis and dialogue with the asset managers. In ESG analysis, responsibility indicators can be used for relative analysis (such as comparisons with a geographic dimension) as well as for examining individual investments in absolute terms.The portfolio managers in the external equity and fixed income investments unit regularly address responsibility issues in their dialogue with the asset managers.
Keva aims to enhance its active ownership mechanisms in the external equity and fixed income investments by working in close collaboration with the other investors and by using external service providers.
The alternative investments unit manages Keva’s private equity, real estate, infrastructure and hedge fund investments. In all of these asset classes, the emphasis is on the assessment of the fund manager/management company from the responsibility perspective and in ongoing engagement during the term of the investment.
Private equity investments
During the investment process the ESG criteria and/or the requirement of compliance with UN PRI is included in the process description, DDQ documentation, the fund description and in the legal due diligence documentation. In respect of major holdings, ongoing engagement is sought during the term of the investment through advisory board seats. An ESG survey of the largest funds’ management companies is conducted annually.
Real estate fund investments
The same principles largely apply to real estate fund investments as to private equity funds. The ESG policy of both the asset manager and the fund is reviewed in the context of new investments. Specific topics addressed with asset managers, by means of examples, include energy efficiency requirements and environmental aspects. With regard to funds held in the portfolio, advisory board seats allow responsibility issues to be raised as and when necessary.
The same principles apply to infrastructure investments as to private equity fund investments. The ESG policy of the fund is reviewed when reviewing new investment opportunities and environmental considerations are in particular discussed with the fund manager. Advisory board seats are taken in infrastructure funds as well and are a good way to engage with the fund manager.
Hedge fund investments
In hedge fund investments, the responsibility assessment focuses mainly on the asset manager.