Notwithstanding recent political developments, Hong Kong and Greater China will continue to provide leadership in driving the environmental, social and governance (ESG) agenda in the region. Meanwhile, data and technology will play pivotal roles in shaping the future of investment decisions.
“ESG will be ubiquitous,” says Michael J. Sacks, chairman and chief executive officer of GCM Grosvenor, speaking at the recent Global Financial Leaders' Investment Summit organized by the Hong Kong Monetary Authority. “It was pretty amazing two years ago, when the war in Ukraine started, to see this very fast and very powerful pushback on carbon in the United States. It became very politicized. It slows things down a bit."
Top business executives discuss the nitty-gritty of investing during a panel discussion at the Global Financial Leaders' Investment Summit in Hong Kong. Photo: HKMA
However, Sacks believes that the investment community needs to stand firm on their commitment to ESG principles. "There's a lot of leadership coming from right here in Hong Kong and Greater China to drive ESG, which is very important for where we're going globally,” he stresses.
“There's a lot of headlines there, and there are some cheap opportunities for politicians, but whatever the political noise is, we're going in one positive and constructive direction, and there will be a lot bigger part of all of our portfolios [incorporating ESG], whether we do that by mandate, or simply based on opportunity,” Sacks explains.
In addition to the public market, there should be a strong commitment from the private space as well. “I think there will be a day when private equity does not buy a business without that business having a plan to bring emissions down by a certain amount over a certain period. The investors in these firms will want that and the returns will prove that,” Sacks says.
Indeed, ESG investing has overcome the initial impression that it would result in lower returns. Out of the US$76 billion of capital that GCM Grosvenor manages, US$25 billion is ESG and/or impact.
"Our US$25 billion has grown not only because clients have wanted that, but because that's where our investment teams have deployed the capital – regardless of the mandate, that's where they've felt that the returns are,” says Sacks.
Data for better decisions
Data and technology are also key focus points among asset owners and managers in recent years. Also speaking at a panel discussion during the summit, Howard Marks, co-chairman of Oaktree, warns on the limitations of relying solely on readily available quantitative information.
"It is a necessary thing to have and digest that information, but it’s not sufficient to produce outperformance. If you want to outperform, in consequences, you will have to be either better than others at understanding the long-term significance of the data, or understanding the qualitative information, or heading into the future,” Marks explains.
The capability to interpret data serves as a differentiator in a competitive landscape. “Everybody in our business is smart, numerated and computerized. Merely the manipulation of short-term quantitative information can hold the key,” says Marks.
Ming Mei, co-founder and CEO of Singapore-based real estate and logistics fund manager GLP, shares during the panel discussion how data helps make better decisions when investing through the firm’s private equity arm.
“We invest in projects that need to anticipate what the world will be like in 20 or 30 years because once you've built a physical building, you can't tear it down five years later. So, we have to anticipate how technology evolves, the location, and the specifications of how to accommodate automation and robotics,” Mei says.
Retail behaviours and patterns are also important data for GLP. For example, smart data enabled GLP to stay ahead and reduce the accounts receivable (AR) days from 30 days to 12 days despite the economic downturn in the past three years. “There is one portfolio company that we invest in that owns the sensors of 40% of all trucks in China that are running. During the Covid lockdown, the central government could not get data from the local regional government and they didn’t trust the data. They asked this company to provide real-time trucking activity on the ground," Mei recalls, noting that trucking data represents the real economy and helps to provide real-time information.
"We use the data to be a map to pick locations and also understand specific locations’ value to customers. We also use this for AR as well. If we see the activity of their customer going down, we know it before the CFO that they are not doing well and we replace the tenants early on,” says Mei.
George H. Walker, chairman and CEO of Neuberger Berman, shares that building up data capabilities will improve investment decisions both in public and private markets. “Investments that we make in things like data science and AI, many of which are driven from our public market investing, will differentiate in the private space as well,” he says.
He also stresses the need to have a firm grasp of both the public and private markets. "The two worlds are colliding. For private market investors, understanding the public markets has never been more critical. Many of the skill sets that we have in our public markets team, for example, in credit, have been incredibly helpful to our development in the private credit market,” Walker shares, adding that a growing number of institutional mandates insist on allocating in both public and private markets.