Stockholm (NordSIP) – Chicago-based V-Square Quantitative Management LLC (V-Square), a global asset manager and sustainability analytics platform, has been around for a couple of years now and already manages eleven strategies across public equity and fixed income. Founded by Northern Trust alumni Mamadou-Abou Sarr and HSBC and JP Morgan alumni Habib Moudachirou (pictured), the firm stirred the market back in 2020 by setting off to develop some truly innovative thematic, customised passive and factor-based portfolios and to deliver unique ESG analytics.
Catching up with one of the founders, Moudachirou, NordSIP takes the opportunity to hear how the firm has been navigating the challenging financial markets of late. The sustainability-minded manager also shares his first-hand account of the ESG backlash raging on the other side of the Atlantic and his views on greenwashing.
The ESG divide
Moudachirou is genuinely concerned about the current politicising of the ESG debate. “The backlash is, however, very much confined to the US,” he explains. “Luckily, V-Square is a global firm with an office in Stockholm, Sweden, and representation in Australia, and we have had many constructive dialogues with potential clients. When we enter a room in Europe, the atmosphere is different. In Europe, we don’t have to explain the legitimacy of ESG investing. The conversation is about how to do it, not whether to do it,” asserts Moudachirou. And the reception to ESG is similar in Australia, according to him.
There seems to be more challenge on the Firm’s home turf. “At the moment, in the US, you need to know the ESG views of the prospective clients,” explains the manager. “As a lean team, we choose not to use our resources to convince potential clients of what we believe to be accurate with regards to ESG investing. We do not believe that sustainable investing detracts from our fiduciary duty.”
Focus on what is material
Whilst other asset managers may complain about insufficient or inadequate sustainability data, a quant manager like V-Square navigates this with an intentional ESG approach. “We focus on quantitative data,” says Moudachirou. “We don’t want to guess or make assumptions; we look at the data.”
Embedded in V-Square’s investment process is consideration of granular information about companies’ valuations and ESG metrics. “We are agnostic as to data providers; we identify appropriate existing indices or help develop new ones when needed,” explains Moudachirou. “We work with many different sources and often find that they complement each other well. The key is to look at the raw data rather than at E, S and G pillar scores.”
Once data is aggregated, the question is how investors assess what matters most to them. In that respect, Moudachirou and his colleagues are supporters of the Sustainability Accounting Standards Board (SASB) standards. “We have known the people at SASB for a long time, and we have enormous respect for all the research they have done to identify the material issues within each sector and industry,” he says. “At V-Square, we attempt to translate the framework they have developed into something investable whilst working with index providers.”
Greenwishing or greenwashing
While on the topic of materiality, Moudachirou warns that lower quality materiality assessment can lead to ‘greenwishing’, a failure of sustainability initiatives to contribute to goals that really matter. “Greenwishing is also a concern for the industry,” he says. “It is a slippery slope from there to greenwashing.”
As to how V-Square makes sure to steer clear of greenwashing, the answer is intentionality. “The integration of material sustainability factors into investment portfolios needs to be intentional and incidental,” asserts the manager. “Unlike certain well-established, legacy asset managers, V-Square had the opportunity to start afresh, putting sustainability at the core of our investment philosophy and investment process. To us, ESG is not just an add-on. This intentionality is our best anti-greenwashing credential,” concludes Moudachirou.
V-Square Quantitative Management LLC (“V-Square”) is an SEC-registered investment adviser. This article is not a solicitation to offer any investment advice or service. For more information on V-Square, visit www.vsqm.com.