17 Jan Interview with Sean Hawkshaw, CEO of KBI Global Investors, Ireland
BF: Dublin’s financial services sector has recently become a capital for responsible investment, including in the energy transition and creating circular economies. To begin the interview, what factors have led to this sudden shift in Ireland’s investment patterns, and what key examples of responsible investment are we seeing in Ireland at the moment?
Sean Hawkshaw: It has really been a more gradual transition. And from my view, it’s not been driven predominantly by domestic investors, it has more to do with the fact that so many international investment firms who have selected Ireland as a key strategic location are responding to changing market dynamics. Currently 17 of the 20 top global asset management firms now have bases in Ireland. This is based on statistics provided by the Irish Association of Investment Managers. That’s about €3 trillion in assets managed in Ireland for those firms. The importance of Ireland as a gateway to Europe has been accelerated by Brexit, and this is clearly reflected in the growth of funds managed and domiciled here. And we’re seeing the underlying investors in the multiple jurisdictions where these products are being sold are focusing more and more on responsible investing and ESG.
There’s also been strong growth in the fund administration segment, which has been established here for over 25 years and now has in excess of €6 trillion in assets administered in Ireland on behalf of a thousand fund promoters, and ESG is featuring more and more in these funds in line with international trends. It’s helped also to a large extent by government and private sector initiatives, a key part of which is the sustainable finance roadmap which is geared to accelerate the transition to a more sustainable economy while also building up Ireland as a global center for sustainable finance.
A key component of this is talent and technical development as well as training future leaders in sustainable finance. The universities have been doing a great job in terms of tailoring their post-grad and graduate courses. So, there have been a lot of different things coming together here over the past few years to enable this transition, and at KBI Global Investors (KBIGI) we’re delighted to see that, having been at the forefront of responsible investing for several decades.
BF: KBIGI has gone through many transformations, including several owners and a large change in direction. Now, the company manages just under €15 billion in assets and has recently won awards for its global strategies. Could you give our readers an overview of what kind of assets the company manages, and major milestones passed by the company in recent years?
Sean Hawkshaw: KBI is a boutique firm based in Dublin with 65 staff and we’ve been in business for over 40 years, which is a pretty long lifespan in terms of investment management firms. We have an office in Boston because a large proportion of our client base is US.
We are a long only equity firm, and we have specialized in responsible investing for many years. We manage two very differentiated equity strategies, both of which are designed to deliver outperformance for our clients by capturing long-term investment themes. Both of these suites were launched around 2000, so there is 22 years track record at this stage and these strategies now form the cornerstone of our business.
Our global equity strategies are focusing on longer-term demographic trends. We construct the portfolios by focusing on dividend yield and income generation characteristics from the underlying companies. ESG factors are built into the investment process.
We also have the natural resource equity strategies where we’re looking to identify and invest in companies that will be the solutions providers to challenges arising from the increased demand for water, clean energy, food and sustainable infrastructure over the coming decades. As you would expect, firms providing solutions to natural resource challenges score highly on ESG measures. These are exciting and forward-looking strategies and, as you would expect, have attracted a lot of investor attention in recent years.
In terms of milestones for KBIGI, I guess the 40-year anniversary is important for us and something we’re proud of, especially given many of us have worked at the firm for a large part of that time. We survived a fair share of crises and market cycles: pandemic, global financial crisis, the dot-com crash, Black Monday, etc., so there’s a huge amount of experience built up in the team.
Another key milestone for us came in in 2016 when Amundi, which is the largest fund management group in Europe, became the major shareholder within the firm. That has worked very well, and it’s been very beneficial to have the backing of such a large organization, which has generated some really meaningful distribution opportunities in Europe and Asia.
This was an important contributor to our progress in 2022, which was our most successful year in terms of new client mandates and distribution partnerships. Despite all the headwinds in markets, we ended the year with over $16 billion under management, which was a good outcome given many other investment firms experienced significant outflows over the same period.
BF: Green investment is on the rise, and KBIGI has gone all in. The company’s €469 million Global Resource Solutions strategy has a revenue alignment SDG score of 69.9% and includes segments in clean water, agribusiness, and circular economies. Why has KBIGI leaned hard into green investment, and what are its current leading strategies? What kind of sustainable developments is the company currently involved in?
Sean Hawkshaw: Responsible investing was always on our agenda, even going back into the 1980s and 1990s. In those years it was typically exclusionary ethical investing for Ireland-based investors.
It was a slow-moving train in the early years, and the launch of the Natural Resource strategies in 2000 was a real inflection point. The initial portfolios invested in solutions providers to water and clean energy challenges and we had a lot of success in raising assets and getting investors on board for those in the early years only to be hit with a major speed bump when the global financial crisis hit and some shallow root investors pulled back. However, we were fully committed at that stage and actually invested more to strengthen and deepen the investment team and process; this really stood us is good stead in later years.
In more recent years we expanded the product range, launching a global sustainable infrastructure strategy and a global resource solutions which is a multi-sleeved portfolio. The most recent addition is circular economy, which was launched in January 2022. All of these natural resource strategies have common features in terms of looking to identify solutions providers to resource challenges. Of course the ultimate objective is to deliver good investment returns for our clients.
Another feature of the natural resource strategies which is received very positively by our clients is the measurement of revenue alignment for the underlying portfolios with the UN Sustainable Development Goals (SDG). This is something we pioneered in 2018. This innovative approach allowed investors assess the impact their investments are having relative to well defined SDG objectives and assessed how this evolves over time. Across all our investment strategies, we have a target to reduce carbon emissions over the 2019 and 2024 timeframe by an average 7.6% per annum.
Over that same period we also have an internal objective of reducing emissions per employee by 30%. Alongside this initiative we have ongoing training on sustainability related subjects which is available to all. For example, we currently have an online staff training program on diversity. This is very much aligned with our responsible investing principles. It’s important to walk the walk as well as talk the talk.
BF: While based in Dublin, the company gains most of its revenue from overseas investors. What international markets are the most significant to KBIGI, and what key markets is it working in that show the most promise?
Sean Hawkshaw: Ireland has one of the strongest economies in Europe, but we have a small domestic market. Our total population is comparable to the greater Boston area. So if you want to be really successful from an Irish base you have to be successful in overseas markets and that’s where our focus has been for the past 20 years. KBI’s investor client base is now spread fairly evenly between North America, Europe, and Asia.
North America is a hugely important region for us. We manage money for public funds, foundations, endowments and family offices through direct mandates and through distribution partners such as Northern Trust in the U.S. and Sun Life in Canada. In Europe and Asia, we work predominantly with our parent group, Amundi, which has a big presence throughout all of Europe and in Asia and this has been an important factor in the development of our business in recent years.
Retail and high net worth investors in Asia have for many years embraced the idea of investing in thematic funds, and KBI’s natural resource strategies have been well received and are available through partners such as MUFG and Daiwa in Japan, Concord Capital in Taiwan, and, most recently, Eastspring in Thailand.
In the institutional segment we work closely with investment consultants, many of whom have global coverage. They do very detailed due diligence on the firm, processes and products, which is typically reflected in ratings they provide to prospective buyers. This has helped us win mandates from some of the largest and most sophisticated institutional investors globally, which is a credit to the standards of professionalism from the team at KBI.
BF: You stepped up as CEO in 2003 during a time of heavy transformation for the company. Since then, you’ve successfully led the company toward significantly growing its asset portfolio. What are your top three priorities as CEO of KBIGI, and what vision do you have for the company in the next five to ten years?
Sean Hawkshaw: I took over as CEO in 2003, so the business has transformed significantly over that time from a provider of pension solutions in the Irish market to a provider of specialist equity product for international investors underpinned by a strong responsible investing ethos. I’m very conscious of what’s been achieved by the team over the past 40+ years, and my objective is to support the continued growth of the firm and preserve the integrity and the culture, which is all about working hard on behalf of our clients, being passionate about what we do, and maintaining the highest standards in terms of our operations and regulatory status. KBI is a small cog in a very big wheel, but we have delivered good results for our clients, and we can play a small part in the transition to a more sustainable future so that when people come to cash in their investments, they can hopefully spend their savings in a more sustainable economy.
BF: What’s your final message to the readers of USA Today?
Sean Hawkshaw: We firmly believe we’re at the early stages of a decades-long transition from fossil fuels to renewables. And that brings challenges and risks but it also brings arguably the greatest commercial opportunity of our time. We’ve seen a lot of debate arising within the U.S. around ESG and its implementation in portfolios, with some states taking very different perspectives. I’m firmly of the view that, longer term, the pace of progression to a more sustainable model is not going to be driven by the politicians or by regulators or, indeed, the asset managers.
Ultimately, it’s the asset owners who are going to decide where the capital is allocated, especially as younger generations become more influential in decision making. We can see this already happening and, while it will ebb and flow and move at different speeds across regions, there’s little doubt that the business case for sustainable investing is strengthening based on fundamental considerations of risk and return, which of course is in the best interest of long-term investors. It’s not about ideology or politics, it’s really about economics.