What does Karina Litvack’s exit mean for F&C’s commitment to sustainable investing?

Questions over the UK fund manager’s future SRI strategy after influential Director departs.

How does a team respond to losing its influential captain? The sudden departure of Karina Litvack, Director, Head of Governance and Sustainable Investment at F&C Asset Management, who will leave at the year-end, begs the question. Litvack spearheaded F&C’s 15-strong Governance and Sustainable Investment (GSI) team, overseeing voting, shareholder engagement and sustainability research for the firm’s related funds. Multi-lingual with a strong financial background, she is also F&C’s representative at the table on important global responsible investment groups. The firm was a founding signatory to the Principles for Responsible Investment (PRI). She is also a senior woman in a fund manager where the executive is 100% male, so F&C is hardly moving with the times. The firm is a major name in SRI and Litvack’s exit will dim its presence on international sustainability initiatives and leave a large hole internally. It’s no exaggeration – nor disparaging to the respected GSI team – to say that for many in the RI business in the last decade or so, Litvack ‘was’ SRI/ESG at F&C. Her 15 years at the firm have seen her handle the roll-out of products such as its Responsible Engagement Overlay (REO) voting and engagement strategy, which is today applied to €105.8bn of assets, of which €75bn are externally-managed funds, giving the firm an important relationship with big international clients. Sources close to F&C said Litvack was highly respected by the GSI team and that her leaving will unsettle them. They suggested some staff could follow her to an alternative venture if one was on the table. The GSI team includes well-known RI professionals such as George Dallas, Corporate Governance Director, Vicki Bakhshi, Associate Director, Governance & Sustainable Investment and Elizabeth McGeveran, Senior Vice President. Martin Smith, Head of Product Management at F&C, said Litvack was leaving F&C by “mutual consent”. In a note to colleagues and friends seen byRI, Litvack said she had “agreed to facilitate” the firm’s “strategic realignment” by stepping down, and that responsibility for the GSI team at F&C now lay with Smith. The language suggests a change in emphasis around the GSI team. Such strategic adjustments can have knock-on effects on staff focus. However, in her note Litvack said F&C remained strongly committed to governance and sustainable investment and would continue to develop products and services. But sources questioned whether F&C’s management still considered SRI a growth business given the decision to let Litvack go. It has echoes of Aviva Investors’ ex Chief Executive Alain Dromer, who, when disbanding the firm’s dedicated SRI team earlier this year, said: “These are themes that do not particularly generate any revenues. Funds under management in our SRI funds have been stagnant.” There’s no suggestion that F&C will follow Aviva’s example and further trim its dedicated SRI team in favour of ESG integration, but the firm appears to be asking the same questions as Henderson and Aviva before them: ESG integration or specialist SRI products? That said, F&C has been restructuring for the past 18 months since the takeover in February 2011 by Edward Bramson, Chairman of Sherborne, the activist investor company, who convinced shareholders to oust the previous F&C board over performance problems. Indeed, observers expected F&C’s sustainability personnel to reduce at the time under Bramson’s subsequent cost cutting programme. Last week, F&C appointed Richard Wilson, a former Gartmore and Deutsche Asset Management senior, as its Chief Executive, effective from January 1, 2013. That followed the retirement in May of F&C Chief Executive, Alain Grisay, who was sympathetic to F&C’s sustainability business and personally backed international climate change reduction initiatives. Litvack’s replacement, Smith, an Investment Director of more than 10 years at F&C, told RI that F&C was still
committed to integrating ESG factors into investment. He said the manager was developing a new ESG risk tool for portfolio managers and that the REO service would feature new web-based functionality. He said F&C wanted to look at the “positives” of ESG investments and was looking at opportunities in the Sharia fund area. F&C, he said, will also look to launch new funds in its Stewardship range, which includes the UK’s first retail ethical fund, the F&C Stewardship Growth Fund, launched in 1984, and a reference in UK ethical investment. F&C should be well placed with its Stewardship brand given the naming last year of the UK’s Stewardship Code on manager voting and engagement.And its sustainable funds business is significant with over €3.6bn in assets alongside the REO business, out of a total of £96.8bn of total assets. In her note, Litvack said leaving F&C was “a bit of a wrench after so many years”. But she said she was “excited” to have time to look at other “interesting things that have been streaming into my inbox”.
The departure will have industry observers anticipating her next move. It will also have clients keeping a keen eye on F&C’s commitment to its sustainability funds and the team that runs them.