To work under three Chief Executives in as many years is destabilising for any company; especially when the latest leaves after a year and a half in the job, preceeded – as RI has revealed – by two senior board members.
RobecoSAM, the Zurich-based specialist sustainability manager, has been through a difficult period, partly as a result of disagreement about closer alliance with Robeco, its larger Dutch sister fund manager. The departure of Aris Prepoudis, former RobecoSAM CEO, in May this year after 18 months in post came after the unexpected exit of another former CEO, Michael Baldinger, to UBS Asset Management in 2016. In between, Reto Schwager, Head of Private Equity, took the CEO role on an interim basis.
Gilbert Van Hassel, CEO of Robeco, the Rotterdam based fund manager and 100% owner of RobecoSAM, talks about the future of a more closely aligned business, which it is implementing as a result of the changes. Van Hassel says that in the mid-2000s when Robeco bought SAM (later re-branded as RobecoSAM), it did so because it recognised that deep sustainability factors for long term investment decisions could add or subtract value in portfolios. But, he says, at the time, the pure ESG oriented product stayed within a niche capability. That now has changed, he says: “What we are seeing is that sustainability has gone mainstream. Everybody is talking about it. Every asset management company says they are doing it. Fiduciary responsibility is being redefined and it’s no longer about wealth but also about well-being. We are seeing that millennials, institutional investors; everybody is looking at ESG and no longer just wanting to talk about increasing the value of their portfolio but also making sure what its impact is on society. He says Robeco/RobecoSAM as a combined organisation has had that conviction for 20 years already: “Personally I think that we are still very far ahead in our philosophy, our methodology and the way that we are integrating ESG into portfolios.” Internally, he says the change is that the group now sees that working together and operating as one organisation is actually what is going to benefit clients, offer better products and keep pushing the sustainability agenda forward. Robeco manages money across all asset classes and RobecoSAM has the sustainability focus: “When we collaborate we are a lot stronger and a lot better in doing it as one rather than two separate organisations.”
In terms of the strategic change that has taken place, he says it doesn’t mean that the two are now merged or integrated: “What it means is that we are going to collaborate a lot closer than in the past because that’s what the clients expect from us and that’s how we can demonstrate our strength to the market.”
Asked about the departures of Aris Prepoudis and the subsequent board changes at RobecoSAM when, as RI reported, Albert Gnägi and Marcel Rohner left in January this year, Van Hassel says: “The markets change and the strategy changes. We decided to introduce a matrix organisation, whereby functional oversight from Robeco on RobecoSAM would ensure that the two organisations collaborate closely. The majority of the board decided that this was the way to operate. As a result, we decided to have a much leaner Executive Committee (ExCo) at RobecoSAM.” Van Hassel confirms the difference of opinion on the board prior to the decision, noting that the majority favoured further strengthening the collaboration and Gnägi and Rohner didn’t: “We decided on the leaner management organisation and as a result
the two board members and the CEO parted.” Daniel Wild, one of the new dual CEOs at RobecoSAM, says that the decision to have a leaner ExCo in Zurich means there are now 3 members of that: Wild, Marius Dorfmeister as co-CEO and David Hrdina who heads the corporate services department covering compliance, risk management, finance and performance management. He explains that two CEOs implement the strategy decided by the board of directors, but with different areas of responsibility: “In my case, it’s investment and research and in Marius’ case it’s everything related to clients and marketing.”
The ExCo reports to RobecoSAM’s Board of Directors and the matrix organisation means that some of RobecoSAM’s senior managers have functional reporting lines to their counterparts at Robeco in Rotterdam. He notes: “This is in order to be aligned on the bigger strategies which we want to reach. But final management decisions are always taken within the hierarchy of Zurich.”
Some people have interpreted that as a shift of power from Zurich to Rotterdam.
Wild says the two groups have worked together strongly over the years in areas such as IT, and that the matrix formalises and broadens some of these functional reporting lines from RobecoSAM to Robeco across HR finance and investment: “We believe that the alignment of our strategy, vision and mission in the area of sustainability will mean that the senior managers together will find agreement on how to progress.”
Any disagreement can be taken up by the RobecoSAM ExCo, and if necessary escalated to RobecoSAM’s board.Wild says the alignment is underpinned by a couple of strengthening factors. These include his own advisory role to Robeco’s ExCo and the creation of a Sustainability Impact and Strategy Committee (SISC), which combines decision makers and senior managers from both firms in order to define the sustainability approach.
“This is a completely new committee that I am chairing.” The SISC has seven members of Robeco and six from RobecoSAM from disciplines including marketing and sales, product development, research and investment. Its brief is to develop strategy and operational plans, with proposals reviewed by both ExCos.
Van Hassel says: “The fact that senior people are already represented in the SISC means we don’t expect lots of divergence on the final decisions made by the ExCos.” On the issue of a power shift, he says he sees it as a business opportunity, but addresses the question directly: “When Robeco bought RobecoSAM in the mid-2000s, it’s pretty clear where the power was: we own 100% of RobecoSAM. Now, it is about the combined organisation having everything it needs to ensure the knowledge we have built up can be put to good use for our clients. It’s not about power.” The strategic change, he reiterates, is that sustainability can no longer be separated from asset management: “It’s integral, and at Robeco we very much believe in that. We manage €104bn of assets where ESG is integrated. This is 100% of the assets where ESG integration can be applied, managed by our own investment teams.
There has been some different accents in the strategy, but that’s not because we have changed our opinion,
but because the market has been changing dramatically. There is not a day where you do not see an asset manager building a voting or governance team or hiring people for ESG. This is going absolutely mainstream and therefore we need to reflect that.” Wild says joining forces has also enabled RobecoSAM to make additional investments in resources such as strengthening the SI research analyst team in Zurich.
So what does the future collaboration look like for clients? Wild says the two have started with vision and mission, as well as discussions on joint research needs: what coverage, how deep, where, and for what deliverables? One example, he says is that the trend investment strategies in Rotterdam share similarities to the thematic approaches run out of Zurich: “They are not the same but they are complementary. We have appointed a new Head of Trend and Thematic Investing to bring this together in a consistent way to clients.” Wild says this is an area where Robeco/RobecoSAM sees strong growth and opportunities: “Our electric vehicles strategy which we launched together with Daiwa in Japan has been a major contributor to our inflows in 2018. We believe there are a lot of opportunities out there on the product side.”
Another example, he says, is the fund manager’s work with the UN Sustainable Development Goals: “This is a methodology that originated in Zurich and was applied in an SDG equity strategy. It is now matched by an SDG credit strategy managed by our colleagues at Robeco in Rotterdam which follows the same SDG research approach in the background.”
Van Hassel adds: “The Daiwa deal is a clear example of co-operation. RobecoSAM had been talking to them and Robeco has an office in Japan where the senior management had a fantastic relationship with Daiwa. Jointly, through investment knowledge and relationship we won the business. Then you are dealing with Japanese clients that require servicing with Japanese language skills, and can be done by both.“He says the SDG credit product is similar: “It came from a discussion I had with large Dutch pension plans who wanted to invest in SDG-related products. Conversation started with our 30-strong credit team in Rotterdam and then with the RobecoSAM research team in Zurich. The methodology was developed and applied to the first SDG credit product in the market. Without working together, hand in glove, it would never happen.”
A longstanding issue has been the split of the sales division between Robeco and RobecoSAM. Van Hassel comments: “Sales forces always have the tendency to sell what is in large demand. In every conversation with clients ESG is brought up in the first 15 minutes regardless of where I am; in the United States, Asia and the Middle East. I think that solves our sales problem like snow for the sun, it just melts away.”
In every conversation with clients ESG is brought up in the first 15 minutes.
Wild explains that in practical terms this means that in Switzerland, in the mid-term, it doesn’t make sense to maintain separate sales forces but to work jointly.
A critique levelled at Robeco has been that sustainable investment research is difficult to integrate into the quant investment strategies that make up a large part of Robeco’s business. Van Hassel strongly refutes this: “It’s very surprising because for us ESG is clearly a basic question we ask ourselves when we invest in any security. RobecoSAM defines what the material sustainable subjects are by industry – plus, neutral or minus – develops the framework and starts to apply it, just as an equity analyst will look at free cash flow or leverage structure. They will adopt a discount factor based on the ESG components. As far as our products are concerned, that process goes into every single security we evaluate. We have a regular quant product which has ESG integration, and we have quant products
that are 100% sustainability or ESG where we aim for about 20% better against the relevant index.” Wild adds that RobecoSAM was the one of the first in the market to look in a quantitative/predictive way at ESG data: “More than 2 years ago we launched Smart ESG, which means ESG information in an unbiased and uncorrelated way. This is the data being used by the Robeco quant team, which itself has more than 20 years of experience. There are a number of scientific papers that back up that approach now. Of course, on the fundamental research side we look in detail at the information behind the data.”
According to the PRI, both Robeco and RobecoSAM scored an A+ on all of the assessed modules for ESG integration.
In terms of strategic plans to boost net new assets at RobecoSAM, which has lagged in recent years, Van Hassel says it is work in progress.
“Within the SISC we have looked at branding. We haveinvested significant amounts of money here and there is a lot of value linked to the IP and to the brand (of RobecoSAM). We are looking to see how we can exploit it going forward. But in terms of the strategy overall within the combined Robeco/RobecoSAM, we are clear that there are four product areas that are absolutely critical. These are quant, credit, emerging market equities and sustainability. I think that we have the stars aligned, here. Firstly, there is very significant client demand. Secondly, we have very good performance. Thirdly, when you talk about Robeco/RobecoSAM, the market identifies us with these four areas. We expect to organically grow those substantial capabilities, and that is what we have been seeing over the last two years. We had over €11bn in flows last year in Robeco, and €8.1 bn over the first couple of months of this year. Last year, we had over €418m of new money at RobecoSAM, so things are going exactly as we see it.”