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Kempen's Commentary: The Real Active

07 February 2020

 

The Real Active

Insurers, pension funds, banks and family offices help their end customers to meet future obligations. In order to achieve that, returns must be realised. Asset managers must deliver those returns for all stakeholders and at the same time manage the client’s capital in a responsible way. It’s widely known that the majority of active investors is unable to beat its benchmark. They tell great stories, charge high costs and in the end deliver the same results as products that follow an index. It’s therefore understandable that investment portfolios are increasingly filled with passive products. Buyers are sick of it.

I think an increasingly clear distinction can be made between ‘real active’ and ‘traditional active’. Active management is much more than allowing a few smart guys to choose the right stocks within a predetermined universe. A real active asset manager is capable of long-term stewardship, realising real economic returns for clients. Real active is not just about superb performance in terms of returns, it also makes a positive contribution to sustainability. Real active assets will also have a place in the investment mix of all clients in the future. We have come to call that way of investing The Real Active.

But how does an investor distinguish The Real Active from a traditional asset manager? A few simple questions can help answer that question:

  • Does the asset manager substantially invest in his own fund? After all, what is a better guarantee for belief in the quality than the private assets of the fund manager?
  • Are the remuneration structures for, let’s say, variable remuneration geared to long-term results for the client, or to short-term performance and selling as much of the investment product as possible?
  • Is the fund manager active in the right way? How well does he know the businesses he invests in? To really create value for all stakeholders, active asset managers should focus on a limited number of businesses he really knows, talks to and can influence. He must really be a shareholder who thinks along with his client about the long-term interest of the business. Or as Keynes said: “The right method in investment is to put fairly large sums into enterprises which one thinks one knows something about.”
  • Does the manager actively discuss the ESG criteria with the management of the businesses in which he invests? Exclusion is a last resort when talking no longer makes sense. There are countless examples of how a dialogue with shareholders triggers change in a listed company. A real active manager will engage in in-depth discussions about business strategies, capital allocation and risks and opportunities in the area of sustainability. We’ve experienced that success depends on the quality of the dialogue and not on the size of the position.

The Real Active shows in actions. As chief investment officer of an asset manager, I believe in The Real Active and I feel fully responsible for answering all the aforementioned questions on our strategies positively. We want to provide investment alpha and sustainable alpha for our clients and their clients. The fact that Morningstar nominated us this week for, among others, Best Asset Manager ‘Equity Fund’, Best Asset Manager ‘Bonds’ and Best Asset Manager ‘All asset classes’, strengthens my conviction that we are on the right track.

I hope that you truly stimulate your asset managers, as only real active should have a place in the portfolio. 

The author

Lars Dijkstra

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