Tiedemann quoted in FundFire’s article on HNW interest in impact investing

Managing Director Brad Harrision was quoted in FundFire's article discussing the demand from HNW clients and Foundations for ESG investing.

Read the full article below.

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Asset Managers Misjudge ESG Demand from HNW Practices | By Alyson Velati | July 9, 2019

Asset managers are miscalculating the types of environmental, social and governance (ESG) products that high-net-worth financial advisor practices desire.

Firms are underestimating the demand for emerging market equity ESG and socially responsible investing (SRI) products, while focusing too much on the U.S. taxable fixed income and alternative investment spaces, according to Cerulli Associates data from 2018.

There’s been a huge influx of ESG and SRI products in the wealth management market, but there have been large gaps between product development and actual flows, says Asher Cheses, a research analyst that heads Cerulli’s high-net-worth practice.

It’s not surprising that high-net-worth practices are looking for more emerging market equity products, since “family offices are looking to allocate more to that space and under-allocate to the U.S. in the event of a downturn and later stages of the bull market,” he says.

“I spoke to a family office just a few months ago that told us they were very interested in the solar and renewable energy space within emerging market countries,” Cheses adds. “So, some pretty large family offices are looking directly for these types of products.”

For its part, Nuveen has seen some demand for its ESG emerging market equity exchange-traded fund (ETF), says Megan Fielding, Nuveen’s senior director of responsible investing. The ETF came to market in mid-2017 and has $54.6 million in assets.

“The number of investable options [in the emerging market ETF space] available to investors is still in the early stages versus the demand,” she says, noting that there are good separate account options for investors looking for different wrappers.

In an effort to gain flows, asset managers should collaborate with advisors and their wealth management firms as they build out their ESG offerings, according to the Cerulli study. ESG is a top priority for 55% of asset managers looking to build new products for managed account platforms, according to Cerulli research from 2018.

“In order to win assets in an increasingly competitive marketplace, fund companies must commit to implementing ESG in their portfolios, and the more they can do to explicitly define and differentiate their strategies, the more successful those products will be,” the Cerulli study says. “Not fully implementing or defining a coherent ESG process, for strategies marketed as such, can lead to a loss of credibility for asset managers.”

One of the ways Nuveen developed strong relationships with advisors is through educational efforts, says Fielding.

“We’re asked to go in not to discuss products, but really to talk about what trends are happening in the world,” she says. For example, Nuveen will discuss how they use data to apply ESG lenses in real time and broader topics like climate change and how to incorporate those factors into a client’s portfolio.

Fielding has also seen wealth management firms offer education programs to advisors to help familiarize them with ESG investing.

Family office and endowment and foundation clients also have ESG strategies on their radars, according to Brad Harrison, a managing director at Tiedemann Advisors.

“Either they’ve decided they want to go all in with assets or [are] really just exploring or starting to think about incorporating values into their investment processes,” he says.

Recent Nuveen research shows that conversations between advisors and investors about responsible investing has increased significantly, according to the firm’s fourth annual responsible investing study. In 2018, 33% of advisors said that they had prompted discussions about responsible investing with their clients, up from 18% in 2017.

Advisors are being more proactive about responsible investing, with 51% of advisors saying they offer responsible investing as an investment option in 2018, an increase from 41% in 2017.

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