The global asset management industry has seen two major trends emerge in the last decade, that we at UBS believe to hold major implications for the future of asset management.
The first of these trends has been the significant industry transition from active to passive strategies; while the second has been the climb of sustainable investment, that increased from USD 20trillion AUM in 2016 to USD 80 trillion in 20181. It is interesting to note, that while both market segments were considered niche in the early 2000s, today they are both mainstream. Further, at UBS AM, we believe both these trends are deeply inter-related.
With passive strategies, asset owners face greater exposure to longer-term systemic and socio-economic risks. There is a consequent demand for methodologies that focus on longer-term drivers of performance, that inevitably overlap with sustainability issues.
At UBS, we believe that one such methodology is a well-developed stewardship strategy. Relevant to both active and passive strategies, stewardship can address large, systemic ESG issues through engagement and proxy voting, working towards resolutions that lead to sustainability goals linked to long-term value creation.
Encouraged by recent studies that have linked stewardship, sustainability outcomes and financial returns2, we at UBS AM have also conducted quantitative research studies internally, to understand the impact of sustainability on financial returns. We consider this process essential in creating a solid foundation, that can drive our integration and stewardship strategy.
At UBS, we strongly believe that our evidence-based stewardship policy can lead to better informed investment decisions, while positively impacting a company's business performance, generating benefits for the environment and society as a whole.
1 According to PRI report 2018 and GISR report 2016. 2 In addition to the academic research mentioned in the text, other studies showing the financial impact of stewardship are: Dimson, E., Karakas, O. and Li, X. (2015). Active Ownership. The Review of Financial Studies, 28 (12), pp. 3225- 3268; Junkin, A., CFA, CAIA (2015) , Managing Director, update to The CalPERS Effect on Targeted Company Share Prices, Wilshire; Becht, M., Franks, J., Mayer, C. and Rossi, S. (2010). Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund. The Review of Financial Studies, 23(3), pp. 3093-3129.
This paper explains UBS-AM’s stewardship strategy in light of two key trends that have emerged within the asset management industry: a shift from active to passive strategies, and the rise of sustainable investment as a central topic for mainstream investors.