News came earlier this year that Irish Life Investment Management (ILIM), the largest asset manager in Ireland, had launched the ILIM Global Thematic Equity Fund, which passively tracks the Solactive ILIM Global Thematic Equity Index.
Designated Article 8 under the Sustainable Financial Disclosure Regulations, the fund was designed with strong ESG integration, including the targeting of specified ESG metric improvements, investing in small, mid and large capitalisation stocks in developed and emerging markets whilst aligning with long term structural growth themes.
Alan Duffy, Irish Life Investment Management, senior portfolio manager explains that responsible investment principals are important to ILIM, with 50 per cent of their EUR100 billion in assets designated as Article 8. The firm has been managing money for clients for around 80 years, historically with a strong Irish client focus, but now around 40 per cent of their assets are from international clients and partners.
Duffy explains that the firm has, historically, established partnerships with ETF providers. “We do have established partnerships with ETF providers, where traditionally we have provided implementation services for them to run their business. We continue to work with them closely to see what opportunities exist to bring products to market,” he says.
The firm is keen to emphasise that the Solactive product is not currently offered as an ETF – it’s a UCITS fund tracking an index – but ETFs are on the horizon. “We are currently working on a joint venture in the Article 9 space that will be an ETF and the idea is to do more joint ventures with our ETF partners,” Duffy says. “We can leverage around our core investment skill set.”
Duffy describes ILIM as a firm with a strong heritage in indexation and well-established quant research and multi-asset capabilities. “We have an indexation team and a business that looks after ETF providers as well as deep expertise in managing funds that track indices, including ETFs,” he says. The investor base is institutional, pension funds, and retail platforms. The firm does not offer ETFs at the moment but is open to exploring.
“At the moment our main Equity products are constructed as index funds and if there is a benefit to offering something innovative wrapped as an ETF, we would look into it.”
ILIM has been working with Solactive for a number of years. “We have found them a good company to work with – innovative and disruptive and good to work with in partnership, as they have a flat structure and take a similar approach to our business approach as we work in partnership with clients.”
This latest product is rules-based within the thematic space which he describes as interesting. “When we looked at the passive landscape it tends to be concentrated in single themes such as water or battery technology and the multi-thematic funds tend to be provided by active managers with commensurate fees,” he says.
“We wanted to allow our investors to have a broad offering of themes but also to be able to offer this advanced portfolio construction at the back end so that it is not overly risky with diversified managed factor exposure. There is ILIM intellectual property wrapped in this passive rules-based approach, which makes it more transparent for investors.”
Duffy reports that clients are increasingly placing their assets in the firm’s sustainable investment funds.
“We have signed up to the Net Zero Asset Managers initiative and another focus is stewardship and engagement which we have expanded and are using as a pillar to manage our portfolios, helping Plcs make better decisions when it comes to ESG – it’s a key part of what we are doing, and we expect it to grow. It’s very much client backed.”
Duffy says that, taking a broader perspective, ILIM sees thematic investing as having three interesting features: it’s long term in nature; forward looking and embeds diversification in the ILIM approach.
Long term, he describes as identifying companies that have positive exposure to structural changes such as decarbonisation or climate change which are multi-decade mega-trends.
The forward-looking element Duffy compares with the more traditional passive products which are inherently backwards looking. “Potentially those historic winners may be losers when big shifts happen,” he says. “If you have this thematic investing approach, that has a forward-looking element and sees structural exchanges in the economy, it can complement traditional holdings in portfolios.”
For diversification, Duffy says the firm has identified three categories: Environmental opportunities with companies that are underpinned by climate change; technical disruptions such as AI; and Health and Society, underpinned by demographic changes such as an ageing population or urbanisation.
Duffy says: “To bring that to life – I was there at the early stages of the internet which is a big theme which came in and caused a lot of disruption. If you think of active investing, a fund manager would be able to say he can pick out the winner of this internet age, find a Google for example. But in reality, within this trend there will be winners and losers. What this passive approach takes is that rather than picking a single name it gives you a diversified exposure and having that theme in your portfolio should drive growth over time.”