Growth Strategy of Hedge Fund Markets in East Asia Presented At:
Growth Strategy of Hedge Fund Markets in East Asia Presented At: The Ninth Annual Seoul International Derivatives Conference Presented By: William Mills, Managing Partner, Highland Good Steward Management August 2011 Introductory Opinion My name is Bill Mills, Managing Partner of Highland Good Steward Management and I think. . . That a strong growth strategy in East Asia would be offering a product consisting of■ ■ ■ 1 A series of hedged strategies; Based upon the Korean Green Finance Initiative; and further informed by Additional (E)nvionmental, (S)ocial, and (G)overnance criteria. In Support of This Opinion 2 I will briefly describe Highland Good Steward Management (HGSM); Why Korea should be a prime supporter of such a product; How such a product might be implemented; and How it might evolve. HGSM is. . . A Fund Manager which develops Responsible Investment products for investors around the world; ■ Following the Six Principles of UNPRI; ■ In partnership with great investment managers; and ■ Great ESG Researchers ■ In a Turn-Key overlay structure • Turn-Key to the Investor; • Turn-Key to the Investment Managers; and yet • Customizable - - - Philosophy. . . 3 HGSM Philosophy Capital should be allocated to companies who create value for shareholders in their business affairs and promote environmental protection, social good, and corporate governance excellence as part of their value proposition. HGSM shall pursue this philosophy by seeking to effectively integrate ESG factors into the investment process, and elevate investing to an even more effective level of economic value and social sustainability. Our Mission therefore is to integrate ESG research into the investment process as practiced by proven investment advisors. - - - Business Principles. . . 4 HGSM Business Principles Principles 1) Returns matter! - 2) Collaborate with “excellent managers” to expand their outlook as to investment, rather than simply limit their investment choices. 3) Corporate engagement is more than an advocacy-based add-on! - 4) Don’t forget the ultimate goal! - Therefore. . . Retain excellent managers as Fund Partners, SRI/ESG screening notwithstanding. Emphasize phased integration and signaling in the collaboration efforts. Provide the managers with an information edge. Engagement may be a critically important investment tool and a catalyst for value and sustainability over the long-term. The goal is to change corporate behavior to promote a more sustainable future. . . . Integrated Into A Manager’s Proven Process. . . 5 HGSM Integration Process • HGSM Integration Goal • HGSM will not unduly limit our Manager’s investment choices by negative screening. Our aim is to collaborate with the Manager in their search for additional alpha by integrating ESG considerations into their investment analysis. We will also utilize corporate engagement to influence the desired investment outcome. • ESG Integration is phased in for the purpose of increasing the effectiveness of our collaboration, • Phase I • Access to HGSM Consortium Database • Standard ESG Signaling, Risk and Exception Reports 6 • Phase II • Customize Signaling Indicators • Phase III • Refine and Prioritize Signaling Indicators • Applied Research • Continuous Improvement HGSM Integration Process Map *1 *1 Under development with Hermes EOS, expected to be operational, 3rd Quarter 2011. 7 The HGSM Product Team *1 Why Korea? I believe that the Korean market would support such a series of hedged strategies because of: ■ ■ The Green Finance Initiative Participation in Other Initiatives By Korean Organizations - - - Supporting Facts . . . 9 Green Finance: Concept and Needs Concept Green Finance ■ Financial activities that enhance the financial industry, improve the environment, and promote economic growth. " Source ; Hee Jin Noh(2011),KCMI" 10 Participation in Green Finance-related Global Initiatives ■ Korean financial institutions’ participation in international initiatives related to green financing is on the rise. Initiative No. of Korean Signatories 2008.12 2010.5 GRI 35 102 UNEP/FI 8 8 UN PRI 91) 18 UN Global Compact 151 191 CDP No. of Korean companies that agree to provide information through Investor CDP: 86 Note: 1) As of end-April 2009 " Source ; Hee Jin Noh(2011),KCMI" 11 Korean signatories 13 financial institutions including Daewoo Securities, Hana Bank, etc. 8 financial institutions including Woori Bank, KB Bank, Korea EXIM Bank, etc. 9 financial institutions including Mirae Asset Global Investment, NH-CA Asset Management, Korea Teachers Pension, and NPS 17 financial institutions including IBK, Daewoo Securities, KDB, Woori Bank, etc. 28 financial institutions including Mirae Asset Global Investment, KB, KDB Asset, etc. (Asset Under Management US$ 1.3 trillion) So. . . As to My Opinion. . . Institutional participation in Korea seems supportive of environmental considerations, as well as- (S)ocial Criteria; and (G)overnance Initiatives A hedge fund can be a particularly powerfultool for promoting these goals because of- Trading Liquid Securities Expressing An ESG Profile in Two Dimensions (Long and Short) Voting Proxies; and Corporate Engagement Thereby reducing the relative cost of capital (increasing shareholder value) for sustainable businesses; Increasing the relative cost of capital (decreasing shareholder value) for less sustainable businesses; While providing a platform for additional asset class products. - - - How to Implement? . . . 12 Possible Implementation 13 Green/ESG Policy Development 14 Green/ESG Policy Profile Research Consortium 15 How Might It Evolve? A Platform of Investment Products Featuring Different Investment Managers Including Korean Investment Managers Sourcing Capital Globally Investing Capital Globally, to Include Investing in Korean and East Asian Companies With Korean Research Insights As Influenced By The Green Finance Initiative and Related E, S, and G Criteria 16
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