By Paddy Manning
IT'S a nice problem to have. Amid the financial crisis and accelerating global warming Al Gore's stockpicker, Generation Investment Management, which Gore chairs, is doing a little too well. The purple patch can't last and the London-based sustainable fund manager knows it.
Gore and Generation's co-founder, David Blood, did a busy Australian tour this week. Gore trained 261 new recruits for his Climate Project, launched Safe Climate Australia (a crash plan to switch us over to clean energy), stroked the PM, did Lateline, wowed the UN's Principles for Responsible Investment conference and met key clients in Sydney and Melbourne.
Australian super funds have been big supporters of Generation — tipping in more than $700 million or about 15 per cent of its funds under management. Local clients here include Vicsuper, HESTA, Vision Super, Media Super, Catholic Super and WA Local Government Super. Generation's global sustainability fund has also been available to investors through Colonial First State since 2007.
"It's no wonder we see Gore here so often," says John Coombe, executive director at JANA investment consultants. While institutional investors have been pulling money out of most international share funds, Coombe says Generation has done "particularly well".
Generation doesn't publish performance figures or portfolio holdings. But according to researchers Morningstar, its global sustainability wholesale fund returned minus 3.6 per cent over the year to June 30 after fees — a loss, but way ahead of the broader international sharemarket return of minus 16.2 per cent, represented by the benchmark MSCI World (ex-Australia) accumulation index.
A recent Morningstar note found Generation's investment approach was "one of the best around". Generation's global sustainability fund had trounced the benchmark and most of its peers through 2008, partly by keeping a relatively high proportion (recently 8 per cent) of its funds in cash or debt.
That fund's holdings are perhaps less green than investors, drawn to Gore's campaigning on climate change, might hope.
Generation's approach to sustainable investing is broader than the environment, taking in social issues as well. So the fund's biggest overweight positions are in healthcare. Its biggest holding is Danish health care company Novo Nordisk, one of the largest makers of insulin. It also has a big position in Swiss giant pharmaceutical company Roche.
Other investments include insurer Standard Chartered, online retailer eBay, stationery retailer Staples, massive real estate group Jones Lang Lasalle and one of the US's largest private landowners, forester and sometime developer the Plum Creek Timber Company.
About 3 per cent of Generation's fund is invested in Swiss food giant Nestle, subject of a decades-long campaign over the sale of infant formula in the developing world, and also currently copping flak over extraction of water for bottling in the US.
"Make no mistake: this is not an ethical fund," wrote Morningstar.
Overtly green holdings include Iberdrola Renovables, a global clean energy company with 9600MW installed capacity; Canadian firm Johnson Controls, which makes parts for hybrid vehicles among other things; and sustainable UK construction firm Kingspan, which recently launched a zero carbon home.
Morningstar noted these last two investments have not panned out well for Generation. But overall it concluded the fund offered a "pretty compelling investment case … we just wish it was cheaper".
That's a reference to Colonial First State's fee structure, which charges between 1.2 and 1.8 per cent a year of funds invested, plus a performance fee of 20 per cent of any outperformance of the MSCI benchmark. Which could be partly why Colonial has attracted just $29 million into its Generation funds since launching them with a blaze of publicity in 2007 though, to be fair, the market conditions could not have been more difficult.
(Generation, of course, gets only a fraction of the overall fee — reportedly, about 0.42 per cent — after Colonial, its distributors and intermediaries like advisers are paid. According to a recent report in Investment and Technology magazine, Generation missed out on a significant mandate with AMP after it dumped its proposed flat $250,000 base fee and reverted to a percentage-based fee.)
Generation is not marketing at the moment. It closed the global sustainability fund to new clients last year, with investments reportedly nearing $US5 billion. Existing clients can top up, as Media Super recently did, through the international equities component of its balanced fund. Chairman Gerard Noonan attended a briefing with Gore and Blood this week. Noonan describes Generation's performance as "outstanding" and says Media Super is considering offering Generation funds to those members who choose its sustainable investment strategy.
Generation's really green fund, the climate solutions fund, which raised about $US680 million to invest last year, is also now closed. The climate fund invests in a mix of listed and unlisted companies — it has a stake in Australian scientist David Mills' Ausra solar thermal business, for example — it's registered in the Caymans, does not file its holdings with the SEC and is not open to the public except indirectly through funds like Vicsuper, a key investor.
Vicsuper chief Bob Welsh says the climate fund seeks to profit from the transition to a low carbon economy: "It's when I think about that — taking a positive, solutions approach — that's when I think humanity's got some chance of mitigating climate change and still creating wealth."
The fact Generation is not fund-raising directly gives the lie to sniping from the sceptical fringe that Gore literally scares up business when on tour — making "profits of doom" as Andrew Bolt once wrote.
It is just another smear on the Nobel peace prize winner who has spent decades campaigning on climate change.
But Gore is a hero to many — including GBIZ — and is no doubt a huge marketing asset. Generation protects his integrity by never letting him spruik their funds directly.
Blood, a former chief executive of Goldman Sachs Asset Management, has taken a few hits himself. A searing piece by Matt Taibbi in Rolling Stone earlier this month blamed Goldman Sachs for every major investment bubble since the Great Depression and fingered the bank for the next bubble as well: carbon trading, under the kind of "cap and trade" regime proposed in the US and Australia.
Many of Blood's senior colleagues, including chief investment officer Mark Ferguson (son of legendary football coach Sir Alex), are ex-Goldman.
Financiers saving the world? It's a hard sell.