Small Pension, Big Punch | Chief Investment Officer

A new ranking of ESG-conscious asset owners hails CalPERS, two large Dutch pensions, Norway’s sovereign fund—and a comparatively tiny British investor.

It may have a staff of 11—and only four of those are investors—but a small public pension in a quiet corner of the UK is officially one of the most influential environmental, social, and governance (ESG) investors in the world.

The £2.7 billion ($4 billion) Environment Agency Pension Fund has ranked among some of the biggest asset owners in the world for its contribution to ESG issues by a new survey.

Respondents to a survey of asset managers, analysts, and asset owners by Extel and SRI-Connect named the $295.8 billion California Public Employees’ Retirement System as having contributed the most to the “SRI [socially responsible investing] debate”.

Also in the top 10 influencers, according to the survey, was the $829.5 billion Norway Government Pension Fund Global, the world’s biggest sovereign wealth fund, and ABP, the Dutch pension for government and education workers and the biggest pension fund in Europe.

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Alongside these big hitters at number six was the comparatively small Environment Agency Pension Fund, led by Head of Pension Fund Management Dawn Turner, CIO Mark Mansley, and Chief Responsible Investment and Risk Officer Faith Ward. Based in Bristol in the south-west of England, the fund oversees the pensions of public sector employees responsible for Britain’s flood defences and waterways.

SRI/ESG rankings - IRRI survey Source: Independent Research in Responsible Investment survey The recognition is reward for a decade’s work refining the pension’s investment approach and engaging with asset managers to persuade them of the benefits of a truly long-term, sustainable strategy. In July, Mansley published a detailed report on the pension’s process for awarding ESG-conscious mandates, declaring that “it has never been easier to take a responsible investment approach in an equity mandate.”

European pensions dominated the Extel/SRI-Connect list, with CalPERS and the California State Teachers’ Retirement System the only US representatives.

Sweden’s AP4 ranked seventh, thanks to CEO Mats Andersson’s vocal support of environmental causes and his team’s work to reduce the portfolio’s carbon output.

Dutch health care workers’ pension PFZW was second to CalPERS: Last year the fund announced its intention to halve its carbon footprint by 2020. It was also one of the most vocal investors at the recent COP-21 climate change conference in Paris.

The survey also collected data on asset owners’ methods regarding SRI and ESG implementation. Almost half (47%) of institutional investors explicitly require managers to take into account when they are awarded new mandates, the survey found.

In addition, 46% require “active and explicit reporting” by asset managers regarding how they are integrating ESG issues into their processes, said SRI-Connect’s Mike Tyrell, presenting the results.

“If I were an asset manager not reporting on my integration efforts I would be taking serious note of this for 2016,” Tyrell said.

Long/short credit hedge fund Lutetium Capital has liquidated its portfolio and is in the process of returning investors’ capital following a wave of redemptions, according to co-founder Michael Carley.

“The letter to investors went out week before last,” Carley, UBS’ former distressed debt co-head, told CIO. “I’m already all in cash.”

He anticipated finishing client refunds by next week.

The Stamford, Connecticut-based firm had roughly $150 million under management, three-quarters of which came from a liquid alternatives vehicle. Most of those investors exercised their right to quick redemptions over the past year, and pulled their assets.

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“Over the last three years, nobody wanted anything to do with credit,” Carley said. Agreeing to liquid alts terms, he said, was “a good way to get assets under management. The money came in very quickly, and rolled out even faster.”

Unlike investors in Third Avenue Management’s supposedly liquid credit mutual fund—which set off panic after freezing withdrawals—Lutetium’s clients got what they paid for.

“They deal was, when they call me and ask for their money back, I give it to them in five days,” Carley explained of his liquid alts clients. “I promised will provide it to them in five days, and I did.”

A recent report from data firm eVestment said that demand for hedge fund credit strategies had “evaporated” in 2015.