RI Interview: Aris Prepoudis, RobecoSAM’s CEO, lays out his business plan after firm turbulence

Six months into the job, the new chief explains his growth roadmap.

Aris Prepoudis has a clear plan to stabilise and re-energise RobecoSAM in Zurich after a difficult period of senior departures. The new CEO took the reins at the start of this year after leaving the CEO post at rival, Vescore, the former sustainability investment business of Notenstein, the Swiss private bank. His design is for simplicity and better profitability based on three strategic pillars.
The first is to intensify the promotion and marketing of the manager’s thematic funds business via a newly recruited sales team. (see RI news story).
The second is to further ally RobecoSAM’s sustainability specialism with the quant investment capacities of Robeco, its €137bn (as of December 2016), sister fund manager, via a so-called ‘assets under advisory’ relationship. Prepoudis points as an example to the 2015 mandate won by Robeco at ERAFP, the €27bn French civil service pension fund, for approximately €200m in SRI Pacific Equities based on fundamental company analysis in line with ERAFP’s 100% RI principles, and the manager’s ability to engage on ESG issues with investee companies. He believes this relationship can be ‘dynamic’ and could, for example, take the form of client demand for rules-based investment approaches such as low volatility or mean variance strategies overlaid with a decarbonisation strategy.
The third pillar is to leverage RobecoSAM’s alliance with S&P Dow Jones Indices on the Dow Jones Sustainability Indices launched in 1999 (RobecoSAM does the research, S&PDJI does the calculation and publication) for ESG investment research advantage and a broader index product range. Prepoudis says: “The S&P brand gives us enormous pull in the corporate landscape and as a result RobecoSAM has one of the most sophisticated, undisrupted, and powerful databases on corporate ESG. We’ve been doing it for a long time and have historical data consistency.”
More important though, he says, is the manager’s capacity to translate these data signals into investment rationale: “There are a lot of pre-conceived ideas about sustainable investment managementsuch as performance being a size bias towards small or mid-cap stocks. But we focus intensely on getting rid of those biases and isolating the ESG components for investment performance. That’s a large part of our IP.”
Prepoudis says rapidly increasing investment flows into exchange traded funds (ETFs) and index strategies due to client questioning of the “alpha proposition” of active managers, mean RobecoSAM is extending the S&P relationship to create more enhanced sustainability indices and customized passive solutions: “The flow of assets into passive is a representation of doubt in the investment industry related to the active contribution of, for instance, stock-picking. We have to be realistic that the more information efficient an investment universe is, the harder it is outperform the market.”
Going back to the first pillar – the manager’s thematic funds range – Prepoudis says its development is part of its answer to these client ‘philosophical’ questions on active performance: “We believe only deep integration of ESG information into the investment decision process will lead to outperformance. Empirical studies back this up, as does our analysis.” But, he says, this poses a challenge: “When you combine fundamental equity and ESG research, the technical way of doing this can, in the worst case, also destroy value. So we have to isolate the ESG value factors, iron out the biases and integrate the information deeply in the investment process. Our strategic theme references, the ‘artificial’ benchmarks we have for our thematic portfolios, show we have consistently added value compared to traditional benchmarks and universes. But it is about constantly repeating this and introducing it to investors and professionals. And these days it’s not just about investment performance either, there is the whole investment ‘impact’ result to think about, and which clients are increasingly sensitive to.”
Since 2013, RobecoSAM, has been owned by ORIX Corp., the Japanese financial services group, following its majority buy-out of Robeco, the former parent.
Prepoudis says his business proposal to the board of
RobecoSAM prior to joining was to grow the profitability of each of these strategic pillars over the next five years.
His arrival came after the unsettling departure of former CEO Michael Baldinger, who quit unexpectedly last summer after five years as CEO and re-emerged at rival UBS Asset Management as head of sustainable and impact investing, based in New York. Reto Schwager, Head of Private Equity and a member of the RobecoSAM Executive Committee since January 2015, took on interim CEO duties. Significantly, the private equity fund-of-funds business, which had been run under the RobecoSAM umbrella is now being run as Robeco Private Equity; still based in Zurich but reporting to Robeco’s Rotterdam HQ.
The staffing uncertainty didn’t end with Baldinger’s departure. Neil Johnson, Executive Director, Head of Sales in the US left the firm in November 2016 after almost seven years, leaving it without a North American sales presence. Subsequent exits at the beginning of this year included Christopher Greenwald, the Head of Sustainability Investing (SI) Research and marketing head Christine Gugolz Kiefer, who both joined their former boss at UBS. Guido Giese, Head of Indexes at RobecoSAM, left in February, destination unknown.
The traffic hasn’t been one way. In January, Marius Dorfmeister, who had been Global Head of Clients and a Member of the Executive Committee at Vescore, came and took broadly the same role at RobecoSAM. Prepoudis says he believes headcount will now remain stable at about 100 staff: “I think we have the people on board we need. It is a natural process, a CEO leaves and a CEO joins, and people move if they feel like they want to leave.”
He says RobecoSAM has been able to maintain its client base, despite the staff changes. As of December 31, 2016, RobecoSAM had client assets under management, advice and/or license of approximately $16.1 billion: “We’ve had quite a substantial net new asset in-flow of some $100m in the thematic funds, with more business to come. There are good prospects for new index business that we hope to land jointly with S&P. I’m quite happy so far: no client defections.”
The personnel switches at RobecoSAM also coincided with a major structural and management reshuffle atRobeco as the sale to Orix was digested. Under a new group structure, Robeco Institutional Asset Management now has its own supervisory board and executive management, led by Gilbert Van Hassel, CEO and chairman. Robeco Groep has become the financial holding company for Robeco, RobecoSAM and its other funds subsidiaries: Boston Partners, Harbor Capital Advisors and Transtrend.
Market chatter that the RobecoSAM brand could be subsumed into the sister firm, is just that, says Prepoudis: “I personally think it’s much more powerful as a value proposition if we have a separate brand in the market, because it demonstrates the relevance of the topic to the outside world. Furthermore, during the recruitment process, I was told by representatives of the shareholder that RobecoSAM will stay a separate legal entity and brand. The brand RobecoSAM is powerful and attracts a lot of talent. We get superb interns from the best universities, and therefore I think it is much more credible than being just another ESG department embedded in another financial institution. We believe in our growth potential as a separate legal entity, focused exclusively on ESG and cooperating with Robeco.” The commitment echoes what Prepoudis says is his own personal mission in investing: “to reallocate capital in markets towards more sustainable business models.” Sustainable development, he adds, is not a ‘nice to have’ but a ‘must’: “We face the most monumental transformational challenges in demographics, the after-effects of urbanisation, industrialisation, and the enormous growth we have witnessed in emerging markets that can ultimately lead to frightening symptoms like climate change.” And he believes that one of the challenges sustainable investing has is that there are so many definitions around it: “It is a marketing nightmare because there is so much greenwashing. The awareness of the seriousness of the issues is there, but our challenge is to come up with a credible, implementable value proposition for investment that decision makers can ultimately take back to their boards and reporting lines. I believe we have the ESG investment strategy to do that, and the reputation and track record, which we see as an enormous advantage.”