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Andrew Dykes, Deputy Chairman of The Global Sustainability Trust plc, explains why it is focusing on private, unlisted markets to target sustainability opportunities.
You made the decision quite early on in the development of The Global Sustainability Trust plc to focus on private unquoted investments, didn’t you?
AD: Yes - that was partly because we saw it as the most effective way to get capital to where it can genuinely make a difference. But also, when we spoke to potential investors such as wealth managers, they were really keen to be able to use the trust to access opportunities they couldn’t easily access otherwise. There was no point focusing on listed equity because a wealth manager could create a portfolio to do that themselves. So there was a big demand coming from potential investors for the trust to focus on private markets - much more so than we had initially anticipated, in fact.
Did the decision to use an investment trust structure come before or after the decision to focus on private markets?
We were already intending to use an investment trust structure because its closed-end nature can provide the long-term, ‘patient capital’ that sustainability investing requires. This allows us to primarily focus on unquoted investments. Open-ended funds such as OEICs struggle to invest in unquoted investments because they have to be able to liquidate their holdings at any time to meet investor redemptions. So this is one way in which The Global Sustainability Trust plc could be very different from open-ended impact investment funds.
What type of assets does the focus on private markets allow you to invest in?
All the key sectors you’d want to focus on in order to access the most compelling sustainability opportunities - infrastructure, natural resources, real estate, private equity - and also private credit. It means you can get in early to those initiatives and projects that are changing things and pioneering new ways of thinking.
You’ve talked about private market capital being “useful capital” - what does that mean?
It means you can maximise the impact you have by genuinely providing fresh capital to sustainability projects and companies - what we call ‘additionality’. So you can make things happen that may not happen otherwise.
Buying shares that already exist arguably has less impact because they don’t directly translate into new capital. Listed securities do have a place in sustainable investing and we will buy selectively, with a focus on small-cap opportunities. But if you invest in impact or sustainability funds that only invest in listed securities you run the real risk of thinking you’re having more impact than you really are. Something I in fact used to struggle with when I designed and managed these types of funds earlier in my career.
By their nature, private markets receive less coverage from analysts - how do you find opportunities?
That’s where a fund manager like Aberdeen Standard Investments comes in. We chose them to be the manager for The Global Sustainability Trust plc partly because they are one of the top 10 investors in private markets in the world and they have the global, on-the-ground presence to identify and - more importantly - get access to these opportunities.
Success in private markets like infrastructure and venture capital requires intensive first-hand insight so you need someone with a fully resourced global research function. The fact that this is a fund covering so many different areas of investment means there are very few fund managers that can provide the investment capabilities required.
You’ve talked about this fund targeting a net return of 8%pa over 5 years - how will private markets achieve that?
Partly by their nature, private market assets have an illiquidity premium - an additional return that rewards investors for the risk of investing in assets that cannot easily be bought and sold. This tends to be 2-3% above listed markets, and can be substantially more for private equity and venture capital. Looking at the returns achieved by comparable sustainability strategies and the underlying asset classes we’re focusing on, 6% to 8% looks like an achievable target range.*
There’s also the benefit that private markets assets tend to have low correlation with listed markets, so this fund can also provide investors with a valuable way to diversify risk in their portfolio.
*Target returns are offered as strategy goals and are not referenced to past performance. There can be no guarantee the target returns will be achieved.
Do you hope this fund will inspire further money to go into private market sustainability opportunities?
Absolutely. There’s a huge ‘sustainability financing gap’ to address issues such as climate change, pollution, global poverty and unsustainable production. But at the same time, 75% of investors say they want to put their money in sustainable investments*.
Source: Morgan Stanley Institute for Sustainable Investing Survey (2017)
Important Information
Risk factors you should consider prior to investing:
The value of investments and the income from them can fall and investors may get back less than the amount invested.Past performance is not a guide to future results.The Company’s investment portfolio may not achieve the desired positive measurable environmental and/or social impact.The Company’s investments are inherently illiquid.Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.An investment in the Company is only suitable for investors who are capable of evaluating the merits and risks of such an investment? and who have sufficient resources to bear any loss which might result from such an investment.
The success of the Company will depend, amongst other things, on the Investment Manager’s ability to identify, acquire and realise investments in accordance with the Company’s investment objective and policy. This, in turn, will depend on the ability of the Investment Manager to apply its investment processes in a way which is capable of identifying suitable investments for the Company to invest in. There can be no assurance that the Investment Manager will be able to do so or that the Company will be able to invest its assets on attractive terms or generate any investment returns for Shareholders or avoid investment losses.The Company is an alternative investment fund for the purposes of the AIFM Directive and has appointed Aberdeen Fund Managers Limited as its alternative investment fund manager.
Domicile and legal form: The Company - The Global Sustainability Trust plc was incorporated and registered in Scotland on 17 April 2018 as a public company limited by shares under the Companies Act with registered number SC594582.
Typical investor
The Directors believe that the typical investors for whom an investment in the Company is appropriate are private investors and institutional investors investing for capital growth and seeking exposure to a diversified global portfolio, primarily consisting of Private Market Investments, which aims to create positive measurable environmental and social impact. An investment in the Company is only suitable for persons capable of evaluating the risks and merits of such an investment and who have sufficient resources to bear any loss which may result from the investment. Potential investors should consider with care whether an investment in the Company is suitable for them in the light of their personal circumstances and the financial resources available to them.
Investors may wish to consult an independent financial adviser who specialises in advising on the acquisition of shares and other securities before making an investment.
The AIFM and Investment Manager
Under the terms of the Management Agreement, the Company has appointed Aberdeen Fund
Managers Limited as the Company’s alternative investment fund manager for the purposes of the AIFM Directive. The AIFM has delegated portfolio management to Standard Life Investments Limited as Investment Manager.
Other important information:
Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419.
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For more information, please visit http://www.globalsustainabilitytrust.co.uk/
