Stockholm (NordSIP) – As institutional investors continue to shift increasing parts of their portfolios to sustainable assets, the tendency is to integrate this investment philosophy into existing products that are familiar to their clients. Echoing these trends, M&G announced that its £136 billion With-Profits Fund will allocate up to £5 billion into privately-owned enterprises working to create a more sustainable world. M&G created Catalyst, a new global investment team, to implement this new mandate.
“The beneficiaries of this new strategy are customers in the Prudential With-Profits Fund, which includes PruFund,” the announcement explains*. “Part of the long-term savings of Prudential’s 5 million UK customers will be channelled into meeting the rising global demand for capital from innovative responsible enterprises which are currently underserved by providers of institutional finance,” the announcement explains.
According to M&G, the With-Profits Fund “aims to offer customers returns that balance the extreme highs and lows of short-term investment performance, through investing in a global portfolio of mixed assets and applying ‘smoothing’ to pay-outs from year-to-year.”
This approach aims to smooth the impact of market volatility on the fund, by setting regular “bonus rates” that may be below or above the returns of the fund, with the difference being paid out as “a terminal bonus is paid out at the end of the investment period.” Such funds’ ability to provide a constant ‘bonus rate’ makes them particularly appealing to pension funds and long-term savers for the same liquidity reasons as fixed income securities.
“More and more customers are asking us to make a positive difference to the world through sustainable investment, while also seeking good financial returns to underpin their retirement,” says John Foley, Chief Executive of M&G plc. “Many of the most attractive opportunities to do this are in private assets – new and existing companies and platforms which are not listed on an exchange. As a cornerstone investor in such enterprises, M&G can have a much greater influence in supporting their growth and on sustainability than we can in public markets.”
The Dedicated Catalyst Investment Team
The new 25-strong Catalyst team, will sit within the Private & Alternative Assets business at M&G. It will have a presence in London, Singapore, New York and Mumbai and invest in private credit, real and financial assets and private equity.
“Building on existing capabilities, examples of investments in the pipeline include SME and consumer financing, such as microfinance and trade receivables; asset and development financing such as affordable housing and energy from waste facilities, and technology investments with a positive social or environmental purpose,” M&G explained.
The Catalyst team will focus on impact and ESG risk and use the Impact Management Project’s investment classification framework to assess potential opportunities across three categories of increasingly more responsible businesses. Companies will be classified as “ESG” if they “act to avoid harm”. At this level, M&G excludes sectors such as gambling, tobacco and controversial weapons. Businesses that “benefit stakeholders by generating positive outcomes for people and the planet” are described as “Sustainable”. Companies contributing solutions to societal and environmental challenges are at the top of the responsible investment pyramid and are considered “Impact”. According to M&G’, it uses its proprietary ESG scorecard built on international SASB standards and the triple “I” framework for impact investing to conduct positive screens.
*These products are offered by the Prudential Assurance Company Limited a daughter company of M&G Plc.
Image courtesy of Prudential