Schroders Takes Aim at Measuring Human Capital’s Impact on Stock Returns

A happy shop is a productive shop. And such a business gives the best returns for investors. That is the thesis of a new study from U.K. asset manager Schroders plc, providing a framework for quantifying how companies’ use of their human resources affects their stock market prospects.

Measuring human capital—defined by the Organization for Economic Cooperation and Development as the skills, knowledge and other characteristics that result in productivity— has never been easy. The study from Schroders, in collaboration with Saïd Business School, University of Oxford, and the California Public Employees’ Retirement System, attempts to do that and to go one step beyond by showing a connection between human capital and investment returns.

“As the corporate landscape evolves in a more volatile market, a company’s workforce is integral to its performance,” said Marina Severinovsky, head of North American sustainability at Schroders, in a statement.

She added, “However, the market has lacked distinct, quantitative ways to analyze these factors as tangible assets. This research allows us to identify companies that are leaders and laggards in human capital management to make informed allocation and engagement decisions.”

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The Schroders report crunches significant data to arrive at numbers it then uses to assess how investment returns are affected. Factors measured include salaries, benefits, stock compensation, lost days, turnover and training. Other things go into the mix, too, such as 1) the difference between a company’s employee average pay and that elsewhere, and 2) net operating profit after tax, divided by fixed assets and net working capital.

There have already been many studies gauging human capital in terms of training, spending on employees and expected company earnings. These different approaches are often at odds with each other, according to a paper last year from the National Bureau of Economic Research.

The Schroders study aims to tie these together and thereby track their impact on investment returns. Thus, “companies with strong human capital management are likely to be more capable of navigating the future effectively,” said Angus Bauer, the firm’s head of sustainable research, in the statement.

The study references investing guru Benjamin Graham’s term “margin of safety,” which is how much a company is undervalued in the stock market. In the report, a dot plot shows unnamed companies with a Schroders human capital management score higher than their market valuation.

Schroders’ method is a challenging one. As the report noted, it “knocks on the door of a different approach to understanding the creation of value.”

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Tags: benefits, Benjamin Graham, California Public Employees’ Retirement System, human capital, profit, salaries, Schroders, Stock Market, University of Oxford, valuation

The Nature Conservancy has named five new members to the 10-member investment committee that provides strategic oversight of its office of investments, which manages approximately $4 billion of the environmental nonprofit’s $9 billion in assets.

The new members, who can serve up to three three-year terms, are:

Sandra Robertson, CIO, CEO, Oxford University Endowment Management.
Tanya Barnes, managing partner, sustainable growth equity, J.P. Morgan Asset Management;
Barry Eggers, founding partner, Lightspeed Venture Partners;
Leonie Foong, partner, investment committee member, Overlook Investments; and
Joe Gleberman, CEO, The Pritzker Organization.

“Our Investment Committee is comprised of a dedicated team of leaders committed to advising the management of TNC’s endowment and long-term investment assets in a manner that supports the interests of the organization in achieving its 2030 goals and beyond,” John Bernstein, chairman of the investment committee and partner in Generation Investment Management, said in a release.

As CIO and CEO of Oxford University Endowment Management, Robertson oversees the Oxford Endowment Fund, with investors including the University of Oxford, Oxford colleges and trusts, and other U.K. charities. She has previously served on the boards of TIFF Investment Management and RIT Capital Partners plc. Robertson was also a member of the investment committee of The Wolfson Foundation and a trustee of the Queen’s Trust.

Barnes is responsible for co-leading the strategic initiatives and development of strategy as managing partner in the Sustainable Growth Equity Group at J.P. Morgan Asset Management. The group invests in private growth companies that produce measurable, science-based, commercially driven positive climate outcomes. Barnes is also a board member at Govenda and at Coop Careers Inc.

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Eggers has 26 years of venture capital experience and serves on the boards of Venture Forward, the Industry Advisory Board, Greenspring Associates and Giant Ventures. He previously served as chair of the National Venture Capital Association’s board of directors.

Foong has been with Overlook since 2015 and advises CEOs and founders of portfolio companies on ESG issues ranging from capital allocation to environmental policies. She is also on a working group that advises the Hong Kong Securities & Futures Commission on climate disclosure standards and how to incorporate climate information in investment decision making. She is a member of the investment committee of Balliol College, Oxford, and part of the Public Shareholders Group of the Hong Kong Securities & Futures Commission.

Gleberman is CEO of the family merchant bank of the Tom Pritzker family. He is on the board of trustees of the American Museum of Natural History.

Tags: Barry Eggers, investment committee, Joe Gleberman, Leonie Foong, Nature Conservancy, Sandra Robertson, Tanya Barnes