Investor support takes Legal & General’s climate tilted Future World Fund to £4.6bn

Innovative fund targeted at pension investors reaches almost £5bn

A fund launched by Legal & General Investment Management (LGIM) last year to help pension funds address the long-term financial risks of climate change has doubled in size as new investors have come on board and seed investor HSBC has upped its allocation, RI understands.

According to fund documents, the fund – which launched in February 2017 though it was announced the previous November – now has assets of £4.63bn (€5.2bn). That compares to the £1.85bn at launch with an investment from HSBC Bank UK Pension Scheme, which put its passive equity default funds into the new fund.
The launch drew a lot of attention at the time, with Chancellor of the Exchequer [Finance Minister] Philip Hammond calling it “ground-breaking”. The fund is explicitly aimed to be a “core long-term holding” for pension funds, both defined benefit and defined contribution.

Responsible Investor understands that new institutions have now also invested and that HSBC has added £2bn of defined benefit assets too.

The fund is benchmarked against the FTSE All-World ex CW Climate Balanced Factor Index and aims to provide enhanced returns by using an alternatively-weighted index rather than a conventional market-capitalisation index. It incorporates a climate ‘tilt’, giving greater exposure to companies that are likely to benefit from the transition to a low-carbon economy.

The new allocations are despite the fact that the fund is so new that LGIM says there’s “insufficient data to provide a useful indication of past performance”. But a backtest by FTSE found the index returned 9.59% per annum between September 2001 and March 2016 (compared to 7.05% p.a. for the FTSE All-World Index).Another key feature of the fund is that it also incorporates LGIM’s so-called Climate Impact Pledge: targeted engagement with companies.

The fund holds just over 2,000 companies and its top holdings are mostly in the US: Apple, Wal-Mart, CVS Health, Johnson & Johnson, Home Depot, Boeing, AT&T, Alphabet (Google), United Health Group and Samsung Electronics.

An LGIM spokesperson said: “We have received growing interest from both the institutional and retail market as clients become more aware about the long-term financial risks associated with climate change and the benefits of factor-based investing and ESG.

“The fund has also been gaining traction with DB and DC schemes particularly following a number of ratings from leading consultants over the past year. We expect flows to increase as demand increases for funds that address long-term risks such as climate change.” The fund was made available to retail investors earlier this year.

Meanwhile, LGIM’s Director of Corporate Governance Sacha Sadan has weighed in on the Carillion affair.

Identifying “systemic” corporate governance issues and the “cosy” relationship between companies and auditors, he said the last annual report from the collapsed building firm shows they are “often not worth the paper on which they are written”.

It comes as two Parliamentary committees have published the responses from investors to their queries about their role in the collapse.