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  Business Times 4 Jul 07
For the greater good
Socially responsible investing has caught on in a big way among Asia's high-net-worth. Genevieve Cua reports

SOCIALLY responsible investing (SRI) and philanthropy are fast gaining a foothold in Asia, based on the recently released global wealth survey by Merrill Lynch and Capgemini.

The survey has found that Asia Pacific clients' exposure to SRI investments, also called ethical investing, far outstrips that of the US and Europe and the global average.

The survey's findings are a surprise to some wealth managers here. But what is clear is that investment opportunities in the SRI space are gaining in prominence, and interest is snowballing among the wealthy.

Citigroup, for example, has launched a number of microfinance initiatives, including a donor fund and a separate investment vehicle, the Citigroup Global Microfinance Fund.

Michael Troth, managing director of Citigroup Private Bank, says response to the donor fund has been 'overwhelming'. 'There is significant demand from Asia for this endeavour. A lot of people have been getting in touch with us to see how they can participate.'

In its literature, the donor fund is described as one 'designed for philanthropists who are passionate about breaking the cycle of poverty'.

The donor fund is charitable in nature, where capital will be pooled for donations to microfinance institutions. The latter provides financial services to low income individuals to alleviate poverty.

For those who seek to contribute through an invesment vehicle, there is also the Global Microfinance Fund, seeded to the tune of US$10 million by Citigroup itself.

The fund, which aims to generate returns through a portfolio of loans to microfinance institutions, has a target fund size of US$100 million. It is expected to deliver an excess return above Libor.

Merrill Lynch and Capgemini's annual report showed that the region's high net worth individuals (HNWI), defined as those with financial assets of at least US$1 million, allocated about 14 per cent of their portfolios to SRI, compared to 8 per cent among US clients and the global average.

In addition, the proportion of those requesting for SRI exposure came to 17 per cent in the region, compared to a global average of 10 per cent and just 6 per cent in the US.

Ready to give

In the area of philanthropy, Asian clients appear to be leaders as well - also a surprise. Roughly 12 per cent of client portfolios were said to be allocated to philanthropic involvement, compared to 8 per cent in the US and 10 per cent globally. In the region, 14 per cent of clients requested for it in their portfolios.

This is similar to the US.

Merrill Lynch's managing director and general manager (global private client) Kong Eng Huat says the findings are based on a survey of the firm's financial advisers and are 'very much anecdotal'. '... (They) do indicate that Asian HNWIs are very aware and actively engaged in these two themes. Going forward, I expect more clients will allocate more assets into philanthropic causes and to SRI. There will be more vehicles like SRI mutual funds and advice on philanthropy that is linked to inter-generational transfer of wealth.'

Globally SRI has been gaining traction, thanks to the increasing awareness of various issues ranging from shareholder advocacy to climate change.

The Social Investment Forum's 10 year review in 2005 found that SRI assets in the US had grown over 258 per cent from US$639 billion in 1995 to US$2.29 trillion.

Citigroup's Mr Troth says an SRI screen in Asian clients' portfolios is 'not mainstream', but becoming 'a little more usual'. 'As more people become aware, they are putting a certain percentage in this area. In the past they may not have been able to access the products.'

On a related note, ABN Amro's Pieter Oyens, head of Asia fund-linked derivatives, is seeking to generate interest here in what he says is the world's first fund of hedge funds with sustainable investing as its theme.

The jargon bandied about is a tad confusing, but based on the Association for Sustainable & Responsible Investment in Asia (Asria), SRI and sustainable investing are the same.

ABN defines sustainable investing as activity that takes into account environmental and social factors. One of the aims is to use less resources and create more prosperity in the process.

The bank recently launched the world's climate change index tracking companies involved tackling the adverse effects of climate change.

The new fund of hedge fund, managed by Kenmar, seeks to marry the goals of economic, ecological and socially responsible concerns with capital appreciation.

The SRI sphere, after all, has long laboured under a perception that returns lag other investments without any ethical screen. Kenmar has assets under management of US$3 billion.

ABN's Mr Oyens says the hedge fund will aim for a target return of 10 to 12 per cent and a volatility of 4 to 5 per cent, with a low correlation with traditional assets.

Mr Oyens' team is able to structure products areound the fund to suit client's risk profiles. 'We're very confident of this product. We think response in Asia will be very strong. We would not be surprised to see a huge trend. In Japan we spoke to investors who are very interested. They want to make a contribution and it is a relief to them that we have something.'

He adds: 'As Asians become more affluent, they have the luxury to consider factors other than pure investment return when they invest.'

He believes that in the long-only space, assets with a sustainable investments bent comprise some 10 to 15 per cent of all assets under management in the US and Europe.

On philanthrophy, the Merrill Lynch/Capgemini report says younger HNWI seek to strategically manage the wealth they allocate to philanthropy to maximise their impact. In this respect they tap tactics similar to those that have proved successful in businesses and personal investing.

'This is resulting in a growing trend tward strategic 'investment-like' giving aimed at maximising societal return on investment.'
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