Atlas Global Investors Pioneers Absolute Return Responsible Investing
ESG issues are becoming ever more prevalent in the hedge fund industry, driven by increasing investor awareness and demand for ESG-focused strategies. Many hedge funds have now signed the UNPRI, and some hedge funds have started to embrace ESG issues within their investment strategy.
Historically, it has been argued in the industry that a focus on environmental, social and governance issues can only be achieved by accepting lower returns; that there is a negative correlation between ESG focus and performance. But a new pioneer in the space, London-based, Atlas Global Investors, takes a different view, that responsible investing is a key source of alpha.
The firm, founded by Quentin Dumortier, a former Captain from the French Special Forces, runs an equity long short absolute return fund which has been designed from the ground up for responsible investing. Atlas Global not only gives exposure to structural trends aligned with UN’s Sustainable Development Goals, but also leverages proprietary screening tools to select pools of potential longs and shorts based on ESG factors.
Dumortier launched Atlas Global at the end of 2018 and has been live trading the strategy since the second quarter of 2019. Some might say that launching an ESG-compliant hedge fund is a bandwagon move but Dumortier’s reasons for starting the firm are based primarily on his previous experiences.
“For the last ten years, I’ve had a thematic approach to equity investing, and I’ve found that structural responsible trends were a very fertile ground for appealing investment ideas. Assessing the impact and adherence to best in class ESG practices for large public listed companies is not always an easy endeavour but capital is increasingly flowing towards companies that are doing best and punishing those doing worst. That creates compelling long and short investment opportunities. In combination with fundamental attractiveness, responsible investing is increasingly crucial to generating long-term performance. It’s something that philosophically makes a lot of sense for us, as well as a powerful driver for returns”, he said.
The Atlas Global Opportunities Fund gives exposure to eleven responsible trends, selecting companies out of an investable universe of approximately 2,000 stocks. Stocks are filtered based on both static and dynamic proprietary ESG screens to define a universe of potential longs and a universe of potential shorts. All long positions fall strictly within the Atlas Eleven Sustainable Investment Trends and are best in class from an ESG standpoint. Short positions are selected amongst ESG lower ranked companies, and companies which negatively impact Atlas responsible trends. The data conversation within the ESG space is a controversial one, with many data providers producing unharmonized, and sometimes conflicting, data. For Dumortier, however, the importance is in the process.
“Data is everywhere. It’s what you do with data – how you rank, sort and screen it – that makes it valuable."
“Data is everywhere. It’s what you do with data – how you rank, sort and screen it – that makes it valuable. Paying attention to external sources is often more important than the static ESG indicators which are self-reported by companies once a year. At Atlas we are also relying on independent expert panels to validate our investment universe. There is no secret sauce. For us, it’s about being disciplined and sticking to our stringent selection criteria, which then produces a unique universe of potential longs and shorts.”
When the universe of potential longs and shorts have been established, a more traditional, bottom-up research process ensues.
“Our investment decisions are ultimately based on company fundamentals. That’s why it’s important to define the universe of potential longs and shorts before doing the fundamental research, so that we don’t have the debate of ‘well these guys are not so good at ESG but the fundamentals are great’ or ‘these guys are good at ESG, so they get in, but the fundamentals are poor. At the end of the day we are fundamental investors focusing on delivering all-weather absolute returns.”
The selection process generates a market neutral portfolio of between 20-30 longs and 40-60 shorts. Sizing of positions is based on conviction and the overall portfolio hedging naturally comes from the balance between the long and short positions.
The other side of responsible investing is the activity of the management company itself. It’s easy for a hedge fund manager to say that they care about environmental, social and governance issues but words need to be backed up by action. For Dumortier, running his company to be aligned with best in class ESG practices in their day to day operations includes going through the B Corporation certification, as a testament to the company’s uncompromising social and environmental commitment.
“We’re probably one of the first hedge funds around to go through these stringent certification processes. The B Corporation certification is important to us. We also make sure that we’re putting diversity, both from a gender and origin perspective, into our team. When you feel that you’re on a mission you tend to function much better as a team than when you’re just trying to make money.”
"When you feel that you’re on a mission you tend to function much better as a team than when you’re just trying to make money.”
Dumortier’s finance career upon leaving the Army spans almost 10 years of equity investing as a partner and investment manager in multi-billion-dollar hedge funds. The sum of his experiences has led him to launch Atlas Global Investors, and he believes that in disciplined responsible investing it is possible to both do good and achieve strong performance for investors:
“Each investment decision has a profound and lasting impact on our economy, our environment, and quality of life for generations to come. In combination with fundamental attractiveness, responsible investing is a crucial factor in generating long-term performance. That’s what Atlas is about. We’re on a mission to invest responsibly and deliver superior absolute returns to our investors.”
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