Kempen Capital Management is an asset manager that believes in stewardship and investment focusing on the long-term for the benefit of all stakeholders. Value creation is at the heart of the services we provide to our clients. We believe that being an engaged shareholder on environmental, social and governance (ESG) issues and retaining a long-term focus, is critical to helping our clients to preserve and create sustainable wealth that has positive real world impact and economic returns.Â

Kempen wide approach to responsible investment

We are committed to create sustainable alpha. The four pillars of our ESG-policy are:

• ESG integration: Ensuring sustainability risks and opportunities are adequately considered in our investment analysis and processes.

• Exclusion & avoidance: Not investing in companies involved in controversial activities or conduct.

• Active ownership: Being responsible stewards of our clients’ capital and using our influence through engagement and voting to improve corporate behaviour on specific ESG issues and achieve positive change

• Positive impact: Investing with an objective to achieve positive real world outcomes and impact, such as contributing to the UN Sustainable Development Goals.

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To put our mission and vision into practice we engage with our investee companies on a wide array of strategic, financial, and ESG topics. As an active owner we use our influence to improve our investee companies’ ESG performance.  This helps us address some of the most pressing and important sustainability issues facing business and the world. Our focus themes for engagement are: human rights, labour rights, climate change and governance.

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Through collaboration with other investors and industry think tanks we contribute to the development of principles and standards of corporate responsibility both at sector levels, as well as investee company level.Â

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Our full voting records are available here.

OUR FUND APPROACH TO RESPONSIBLE INVESTMENT

Kempen’s ESG policy is fully implemented in our fund’s investment process with the key pillar being our approaches to: Exclusion, ESG integration and Active ownership. Within this, it is important to note that the Alternative Strategies (ALTS) team invests in hedge funds and thereforedoesn’t directly invest in individual companies.

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1. Exclusion

ALTS screens underlying manager’s portfolios for exposure to Kempen’s exclusion list and actively engages with managers in case there is overlap.

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In addition to regular discussions on ESG, the team has had targeted and extensive ESG discussions with a systematic merger arbitrage manager, which had a position in Orbital ATK once the company became the target of an acquisition by Northrop Grumman. Orbital ATK featured on Kempen’s exclusion list as involvement in the production of controversial weapons and components of such weapons, couldn’t be ruled out. The fund involved is a rules-based risk arbitrage strategy, meaning the team would have to go against their mandate to exclude this investment. The position in Orbital ATK was one of the considerations for ALTS to temporarily redeem the investment in this fund. ALTS also engaged with a second merger arbitrage fund that was invested in the Orbital ATK deal. This manager decided to exit the position after discussions with KCM and other investors, although the manager’s decision to divest this investment might be unrelated to ALTS’ engagement.

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2. ESG integration

During a thorough due diligence process, the team evaluates and discusses potential responsible investment issues with hedge fund managers. In addition, ALTS also tests the current state of responsible investment development and awareness within the organization by means of an annual questionnaire, composed by the PRI association and specifically targeted at the hedge fund industry. The questionnaire consists of questions, focused on Policy, Governance, Investment Process, and Monitoring & Reporting. The responses have been used during the conversations throughout the year helping to shape the ESG-related discussions. Repetition is a tool to show ESG is an important topic for Kempen that will be brought up as long as there is room for improvement.Â

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3. Active ownership Â

Fund managers are encouraged to sign the UN-supported Principles for Responsible Investment (UN PRI) and Kempen offers assistance to those willing to explore the option. In addition, Kempen gives credit to managers that have established a responsible investment policy and engages in an active dialogue with managers to better understand their considerations. Moreover, the team aims to establish long-term partnerships with the managers they invest in and the majority of the funds also act as long-term engaged shareholders causing turnover to be very low at both levels. Finally, robust governance is emphasized in the Due Diligence process in cooperation with an independent Operational Due Diligence consultant (Aksia).Â

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Since the start of 2018, there have been 4 ALTS managers that signed the UN PRI; Capital Fund Management, LibreMax, Marathon, and Transtrend. As Boussard & Gavaudan already decided to sign the principles in 2016 and One William Street did so in 2017, this brings the total number up to 6. The ALTS team has been invested with these managers for several years and has had conversations with each of them about Responsible Investing prior to their decision to underwrite the principles. In addition to the UN PRI signatory managers, 4 ALTS managers have developed an ESG policy while 2 others have stated they are in the process of developing a policy.Â

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Due to the team bringing up ESG in a number of conversations, one of the managers contacted ALTS with the offer to move to an SRI version of the fund which was launched for another client. The restrictions for this fund however are far more elaborate than KCM would like, excluding for example adult entertainment, bottlers & drinks companies, and gaming companies. These constraints significantly limit the universe and are bound to have an impact on the investment strategy, outweighing the positives of excluding some of the names on Kempen’s exclusion list.

Risks

For more information about the mid and long term risks associated with the investments:

• Prospectus