A start-up environmental, social and governance (ESG) fund analysis firm whose clients included the UK’s Environmental Agency Pension Fund and Sweden’s Första AP-fonden (AP1) has closed its doors after three years, blaming “institutional inertia”.
London-based Prius was founded by two alternative investments veterans and took a ‘fintech’ approach to integrating ESG analysis in manager selection using software it developed itself. It focused on helping signatories to the Principles for Responsible Investment (PRI) with their external allocations to listed equities and corporate bonds.
“Today we made the decision to close down Prius and move on,” said principals Pierre Lenders, Joseph Naayem and Nikolaos Dimakis. Lenders and Naayem were formerly with HDF Finance, the Paris-based alternatives manager that was absorbed by Rothschild & Cie Gestion in 2012, while Dimakis is a quantitative analyst who came on board last year from La Fayette Investment Management.
It comes as Morningstar and MSCI ESG Research have both announced plans to rate mutual funds on sustainability factors.
Prius’ innovative FLAME analysis technology was used by the Environment Agency fund to help identify which external managers added value.
“During our selection process, this helped us compare prospective managers on their ESG integration capabilities according to our own investment beliefs and supported more targeted discussions about their investment style,” said the fund’s Chief Responsible Investment and Risk Officer Faith Ward in a testimonial. She said, “the sophistication behind this technology opens the door to much better communication between asset owners and managers.”FLAME looks at a manager’s individual trading decisions and what happened to those stocks in subsequent months, both in terms of ESG ratings and relative performance.
AP1’s Head of External Management Majdi Chammas said FLAME helped it to monitor existing managers as well as supporting due diligence for new appointments.
“As a responsible investor, it is important for us to understand how our managers perform by integrating ESG and the innovation these tools bring have proven valuable in giving us the additional comfort we need to verify how our investment beliefs are reflected in our external managers.”
At HDF, Lenders had been CEO and Co-Chief Investment Officer while Naayem was a Portfolio Manager specialising in hedge fund selection and ESG integration. From 2003-2008 he was with Harcourt Investment Consulting in Zurich, the first fund of fund to create an SRI product in the hedge fund space and which at one time was ultimately majority owned by Dutch pension funds ABP and PGGM via their NIB Capital venture.
“We were initially encouraged to constantly hear that we were ‘in line with where the industry is heading, just five years ahead of the curve’,” the trio said.
“But three years later, that is still where we hear we are. As promising as it sounds, this is more a curse than a blessing for a self-funded start-up at the mercy of institutional inertia.
“Recognizing we were not able to get the business off the ground quickly enough, we came to the decision to call it off and look for better ways of deploying what we learnt.” Prius’ home page.