LGIM’s £5bn climate-tilted Future World Fund for pensions beats benchmark

The Future World Fund, Legal & General Investment Management’s newish climate-tilt fund targeted at pension funds in the UK, has slightly beaten its benchmark on an annualized basis as the asset manager is building out the Future World range to act as building blocks for its new multi-asset fund.

The Future World Fund was launched to fanfare in 2016, initially seeded with £1.85bn by HSBC’s UK defined contribution pension fund (with a further £2bn added later) and benchmarked against the FTSE All-World ex CW Climate Balanced Factor Index. Now, according to LGIM’s online funds centre, it has returned 7.92% over the year to end-June, an outperformance of +0.04%.

A key feature of the fund was engagement with – and divestment of – climate laggards.

It comes as LGIM has become mired in newspaper reports of a “toxic” culture at the firm, which CEO Mark Zinkula has rejected in a letter to clients.

The original Future World Fund, hailed by HSBC’s Mark Thompson as “the new normal” at launch and incorporating LGIM’s “Climate Impact Pledge”, now has assets of £4.7bn – although the other investors have not been revealed.

This has since been followed by a UCITS version called the Legal & General Future World Climate Change Equity Factors Index Fund which has just over £200m in assets.

On top of this, there is now a suite of ‘Future World’ funds, which LGIM says will act as building blocks for the new Future World Multi-Asset Fund.

One feature of the new funds is they are mostly benchmarked against indices from Solactive, the Frankfurt-based index house and not FTSE, as per the main fund.

An LGIM spokesperson said: “Following detailed due diligence as part of the LGIM index design project, LGIM concluded that Solactive was the appropriate choice.

“We work with them to construct the indices for the Future World funds based on our methodology, ESG scores and constraints. Solactive also acts as the calculation agent for the indices.”In June, LGIM revealed what it called the corporate leaders and laggards on climate change, following the first engagement period under its ‘Climate Impact Pledge’.

LGIM had initially focused on engaging with 84 of the world’s largest companies across different sectors and geographies identified as pivotal in meeting the 2°C target set in the Paris Agreement in an engagement running from April 2017 to April 2018.

The Future World funds including ‘building block’ funds (source: LGIM funds centre):

• Future World Asia Pacific (ex Japan) Equity Index Fund. Benchmark: Solactive L&G ESG Asia Pacific ex Japan Index. AUM: £14.8m.
• Future World EUR Corporate Bond Index Fund. Solactive L&G ESG EUR Investment Grade Corporate TR Index. Status: “Not yet launched”
• Future World Europe (ex UK) Equity Index Fund. Solactive L&G ESG Europe ex UK Index. AUM: £14.8m
• Future World Fund. FTSE All-World ex CW Climate Balanced Factor Index. AUM: £4.7bn
• Future World GBP Corporate Bond Index Fund. Solactive L&G ESG GBP Investment Grade Corporate TR Index. AUM: £19.9m
• Future World Japan Equity Index Fund. Solactive L&G ESG Japan Index. AUM: £19.6m
• Future World Multi-Asset Fund. ABI Mixed Investment 40-85% Shares Sector. This targets equities, bonds, cash and listed infrastructure, private equity and global real estate companies. AUM: £0.
• Future World North America Equity Index Fund. Solactive L&G ESG North America Index. £15m
• Future World UK Equity Index Fund. Solactive L&G ESG UK Index. £14.9m
• Future World USD Corporate Bond Index Fund. Solactive L&G ESG USD Investment Grade Corporate TR Index. Status: “Not yet launched”