What now for the SRI team at Henderson facing redundancy?

Could a sale to a third-party or a spin-off be on the table?

A Henderson spokeswoman’s comments last week that the firm was currently “exploring a range of options” suggests there could be an alternative on the table to the proposed redundancy for George Latham, Head of SRI, and Tim Dieppe, who both ran the team’s sustainability funds, and the firm’s SRI research team Seb Beloe, My-Linh Ngo, Bridget Boulle and Hyewon Kong. Last week, Henderson announced that it was abandoning dedicated in-house SRI research and would switch its Global Care and Industries of the Future SRI funds to mainstream in-house portfolio managers using research provided by EIRIS, the London-based ESG house. The SRI research staff have already stopped using Henderson e-mail addresses and have not been contactable for comment since the announcement. Sources close to Henderson say any decision on the future of the team is likely to be quick, perhaps even as soon as this week. Potential solutions include a buy-out of the sustainable funds business by another asset manager or alternatively a spin-off where Henderson retains an equity stake. As of 30th June, this year, the Henderson SRI team managed £790m in SRI assets. Relative to the total size of the £65.4bn fund manager, it is a minor 1%+ of assets; no doubt part of the rationale to merge it with the main funds business. But in the SRI world it is one of the bigger players in a market where retail advisors say client money is ‘sticky’ and institutional prospects good, based on the growth of the $30 trillion United Nations Principles for Responsible Investment to more than 915 signatories. SRI observers say the team would have been profitable based on the assets managed and question thewisdom of Henderson to pull back in a market where client sensitivities to product ethics and authenticity are high. A deal might enable Henderson to maintain its reputation in the face of strongly negative reaction from clients to the announcement. Some of the UK’s most influential ethical independent financial advisors (IFAs) have expressed disappointment and said clients would be unimpressed by Henderson’s decision. The Ethical Investment Association (EIA), which represents financial advisers, has urged the fund manager to reconsider. Responsible Investor has spoken to institutional SRI clients that have said they are reviewing the manager’s decision to put the SRI funds into the hands of mainstream portfolio managers. No asset manager likes the prospect of losing client cash, particularly in these chastened investment times. Indeed, Henderson reported that its total assets under management fell by £9bn (€10.4bn) in the third quarter of this year, hit by unfavourable market conditions and foreign exchange movements. The vociferous client response will have had the manager scrambling its client services staff to the phones to reassure investors that it’s business-as-usual. They may have their work cut out. Bridget Benson, an independent financial advisor with Manchester-based Gaeia Partnership, a specialist in environmental and ethical investment, says the decision crystallises a feeling amongst some retail advisors that Henderson was not standing square behind the sustainability funds business: “It’s not good news. The Henderson team under George Latham have done a good job, but there’s always been a sense that the house support for SRI was
not root-and-branch like with Aviva (Global Investors), Jupiter (Asset Management) or Ecclesiastical (Investment Management). Ethical and sustainable clients and advisors want to see the top-level support, the engagement, the industry involvement.” The client reaction to Henderson’s decision is perhaps not surprising: the SRI funds team at the manager has a long history, and straddles the evolution of SRI from retail preference to serious institutional strategy. At the turn of the century it was also one of the UK’s most successful. When the SRI team at UK fund manager, NPI, joined with that of Henderson in 1999, it kick-started a team that turned more than £500m in SRI assets to more than £1bn and more within a couple of years as UK pension funds began putting SRI in their Statement of Investment Principles and allocating money. As a result, the Henderson SRI team has been a home at one time to some well known names in responsible investment.
Tessa Tennant, Executive Chair for the Asian Sustainable & Responsible Investment Association (ASrIA) was a former Head of SRI Strategy. Nick Robins, Head of HSBC’s Climate Change Centre of Excellence was Head of SRI funds. Rob Lake, Director of Strategic Development at the UNPRI held the post of Head of Corporate Engagement. Other alumni include Mark Campanale, Advisory Board Member at LondonEnvironmental Investment Forum (LEIF), who was a former Head of SRI Business Development, and Jane Goodland, Senior Investment Consultant at Towers Watson, who was a Senior Analyst at Henderson.
 In May 2005, Henderson became a founding signatory to the United Nations Principles for Responsible Investment.
That legacy might also explain some of the serious concern doing the rounds of the SRI market last week following Henderson’s announcement. More than one SRI professional said the decision could be the thin edge of a wedge within asset managers that sees ESG integration increasingly as a ‘bolt-on’ to mainstream portfolio management.
One senior SRI professional told RI: “If ESG integration has just come to mean a screen or research service add-on to in-house management without really deep support and knowledge behind it, then we haven’t come very far. This is what the Henderson decision looks like.”
Another said: “For how many other fund managers is the ESG smoke and mirrors game also true? More importantly, will SRI retail clients and UNPRI asset owner clients continue to reward fund managers who move backwards on their commitments? Because if they do then we are in real trouble.”