Ana Lei Ortiz is a Managing Director of Relationship Management at Hamilton Lane. She joined joined the firm in 2008 and currently focuses on the Europe region. Prior to joining Hamilton Lane, Ms. Lei Ortiz was with various areas of HSBC. She is a CFA and holds her M.A. from the University of Edinburgh.
Your firm was established in 1991. Total assets under management, and assets under management that follow a responsible investment mandate?
We manage approximately $37.5 billion, and advise on an additional $215 billion in assets. We have incorporated ESG issues into our investment processes for a number of years now. The diligence for all fund investments we make includes analysis of ESG issues.
What attracted you to the responsible investment framework? When did you begin offering a responsible investment framework to your clients?
While working in institutional banking in England, I became increasingly interested in many of these concerns. In 2008, I joined Hamilton Lane, which had just become a PRI signatory, and shortly afterwards began spending some of my time focusing on responsible investment. I am now on Hamilton Lane’s Responsible Investment Committee, along with our CEO, Mario Giannini, and three other members.
Are there any other standards, benchmarking and reporting bodies Hamilton Lane follows? How has that changed over time?
Hamilton Lane has historically been very attentive to labor relations and the need to treat workers well; in addition, we have always been active in promoting good governance and building communication and trust between GPs and LPs. So, we had part of the S and the G, then subsequently added the E.
What proportion of your firm’s assets under advisement and management follow a responsible investment framework? Number and types of pension fund investors for whom you manage a responsible investment framework. What proportion of your responsible investments do these clients represent?
All of the managed assets--not just those sourced by our Taft-Hartley LPs-- are viewed through the lens of RI and ESG, and we use those terms interchangeably. We also work with our advisory clients to incorporate their ESG requirements along these same lines. Some of our clients, especially in Europe, are very focused in RI, and some not at all. Some have more of an interest in the S, some in the E (in ESG).
Please list the private markets you are invested in and also the specialized responsible investment funds/products that you offer, including information on their date of establishment, structure and assets under management.
We invest across the full spectrum of the private markets (excluding Hedge Funds): Private Equity, Real Assets, Credit, Infrastructure, etc. We have incorporated ESG into our due diligence process so that all of the funds we invest in are analysed on ESG grounds.
Responsible Investment Strategy and Implementation
How would you define your firm’s responsible investment beliefs and philosophy? Do you believe there is a trade-off between ESG benefits and financial returns? How do you reconcile that within your investment philosophy?
We don’t see a trade off. There are no correlations between positive ESG investments and negative returns. In fact, there are a number of studies showing a positive correlation between ESG investing and outperformance.
What are the drivers or motivations behind your firm’s responsible investment beliefs (such as, invest according to your values, reduce portfolio risk, improve risk-adjusted financial return, invest according to impact on society and/or environment for fundamental financial reasons, etc.)?
There has been an evolution in this arena. It started with ethical investing. For many years, there existed investment exclusions around the “sin industries,” such as tobacco, gambling, etc. Then there was the campaign to disinvest in South Africa. There was a time when a lot of economic investment topics were blacklisted – for instance, some energy sectors were OK, while others (such as the Tar Sands and Arctic drilling) were not. Some investors have dealt with this by side letter exclusions and carve-outs.
Other approaches require managers to report on energy efficiency, health and safety, accident reports, and other subject areas.
We believe that managers need to make positive changes in their selection of portfolio investments to account for ESG (such as focusing on some of the evolving sectors mentioned in #5). The pension clients are demanding more attention to RI and ESG. And we care about these things.
Which strategy or strategies do you use to implement your firm’s responsible investment mandate (e.g. ethical/values-driven investing, community investing, shareholder activism, best-in-class investing, ESG approach, etc.)? Please elaborate with comments.
We have fully integrated ESG into our investments processes.
How and at what stage do you integrate these strategies into your investment research and implementation process?
We routinely incorporate ESG-related questions into our overall due diligence questionnaire to analyse responses alongside every other part of an investment opportunity.
What is your due diligence process for identifying and making responsible investments? What are the characteristics of the universe of responsible investments you follow and invest in?
What steps would you undertake to address the needs of clients who wish to establish and invest according to a responsible investment mandate?
The responsibility of fiduciary managers is to maintain and grow the assets. We want to provide tools that assist the managers in integrating ESG, while maintaining that front-line duty. We can provide the tools to create an ESG policy statement that provides a belief system for managers and clients. Additionally, we have worked alongside the UN-backed Principles for Responsible Investment to help produce ESG implementation guides for both GPs and LPs.
We work closely with our clients to ensure that their own responsible investment requirements and policies are met as part as we build their private markets portfolios.
Returns and Impact
What are your financial return expectations from your responsible investments as compared with your other investments? What benchmarks do you use? Have you been able to realize these expectations? Please elaborate with examples.
We believe there is a direct correlation between RI and performance (an earlier interview with Mr. Giannini, confirmed by clients, established that HL had excellent performance in terms of returns per benchmarks).
There is also major risk to those managers that ignore ESG. You can see how managers could get on the wrong side of a story very quickly. Just look at the examples of retailers who have been found to have sweat shops in their supply chains in Bangladesh and the negative impact on their reputations due to recent factory deaths. BP, after the Gulf oil spill accident, lost billions of dollars. Volkswagen is currently setting aside billions to deal with the fallout from the emissions testing scandal.
RI and SRI used to be seen as burdens to investors; they are increasingly being seen as a positive that can help mitigate risk. We believe that our focus on ESG can help deliver stronger returns.
What challenges (internal or external) do you face or envision in the markets you are invested in?
There is not much out there in the way of market standard-accepted guidelines. We need more broadly-standardized ESG metrics and we are supportive of the PRI’s efforts in this area.
What about any challenges in implementing a responsible investment mandate with union/public pension monies (legal, professional, etc.)? What do you think is needed to increase the share of pension fund investments in responsible investing?
We’ve developed a good relationship over the years with union pension funds, and have backed managers/GPs that build on that relationship. Some labor-affiliated pension funds and their capital stewards are vocal, while others are less so. These investor clients/LPs have come to HL for performance, risk and an ability to identify managers that are appropriate for them. They don’t want their investments in a portfolio that risks damage to their credibility. The share of pension fund assets managed under a responsible investment framework is ever-increasing and the adoption of ESG by GPs is also on the rise.
Five years from now, how do you see the market for responsible investments evolve, and consequently (or in spite of) how do you see your own firm’s responsible investment strategy and services evolve?
Responsible investment is a major topic in Europe. Most RFPs now have ESG questions embedded in them. Managers will have to adopt an RI framework on both sides of the Atlantic, because pension clients will demand it. In five years, everyone will have an RI-ESG policy. Investing to address the challenges and opportunities of climate change is already becoming a much bigger priority.