Welcome to the podcast that shares the views of high-level leaders in the European and global financial services industry.
Nicolas Mackel . – “Welcome to Shaping Finance, a podcast which offers a platform to high-level decision makers and shapers in international finance. My name is Nicolas Mackel. I’m the CEO of Luxembourg For Finance and the host of this podcast. Today I am joined by Karine Szenberg, the Head of Europe and Middle East for Schroders, the global investment manager. Karen has joined Schroders in 2014. First as the Country Head for France before being appointed in May 2018, to her current position. She has previously held other leadership positions for major French and US asset management firms. Welcome Karen.
Karine Szenberg. – “Thank you Nicolas for having me today. It’s a great pleasure.
So Schroders is a 200 year old institution. What can you briefly tell us about its most important milestones?
“Yes Nicholas, Schroders may be 200 years old, but we have always had, I would say vivacious spirits in a sense over the past two centuries, where many things have been changing and the group is continuously adapting. It is fair to say that the history of Schroders began in 1804. And it was at that time the American company focused on the finance of trade between America and Europe. So a long way from asset management company to is to say the least. It has evolved obviously afterwards, and beginning in 1924 as a beginning of client investment management at Schroders. So, it has changed quite massively during the years. And, we’ve been listed in the London stock exchange in 1959. Meaning that also today, we are a listed firms, sorry. And we employ over 5,000… Sorry, 200 employees across 37 locations. So the company has evolved quite a lot.
To achieve that, I have to say that we’ve been lucky to look into acquisition, and we have done a lot also organic growth. But much more recently, what I can say about the company is really about the fact that we’ve been able to add expertise that we didn’t have, especially in private assets. For example, Adveq in private equity, as a previous Country Heads of French, I’ve been lucky to participate to the setup of the infrastructure of finance platform based in Paris called IDA. And then we have continued to expand. Recently we have also acquired a law specialised in impact investments. So it’s really to adapt ourselves to our client’s demands. And this is something that we have been able to deliver, thanks to the family, Schroders family. We today continue to hold 48% of voting rights. And it helps to look on the long-term run much more than a short term period of time.
And looking at the long-term is probably also what helps a firm like yours, stay at the top and stay relevant for such a long time?
“Yeah, definitely. I believe it has really helped massively to continue to develop our selves. I have to say that, something that it resonates a lot because we have Mr. Bruno Schroders who passed away two years ago at the age of 86. He was always asking his directors about the thirty-year’s strategy and vision. So it was really helping us to look forward and much more than anything else. And having this kind of stability has helped massively the firm to continue to develop and to continuate.
Now, I suppose that nobody in their 30 years strategy had foreseen the COVID 19 crisis. And this obviously has had profound effect on our economies, even if today, maybe, the asset management industry seems so far largely unscathed. What is your take? Are we out of the woods or should we brace for a delayed impact
“That’s a good question. Obviously, I have to say that COVID-19 pandemic was the dominant investment theme of last year and it’s continued to be obviously. And, I have to say that we, in our industry in asset management, have been quite lucky in a sense. And so… And if I may say so, because obviously, it’s something that we have to cope with, and it’s a difficult situation. But we’ve been able to adapt, go on working remotely, touch base with our clients. And as an active asset manager, it is fair to say that our solutions have proven extremely resilient during this period of time, and benefiting from all the big rally in the markets that we have seen also last year. So clearly, we have seen help coming from everywhere, by the way, in 2020, because in the form of fiscal and monetary policy stimulus. We’ve been seeing all the central banks helping us, and helping the markets to continue and to ensure that we’re going to continue to stay alive, if I may say.
And so, it has been for the benefits of the investment and the companies. And I hope it’s going to continue to be like this, because it is fair to say that it’s going to impact massively to companies and some companies in the future. But, we’ve been lucky enough to have access to all these kinds of stimulus. And we hope that we’re going to be able to really reconvey the economy in a different way and shape the economy in a different way going forward.
And it’s going to also influence a lot the way that we are managing and the way that we’re going to manage in the near future as well. So, I think it’s also a good lesson to learn as well. But to answer probably your question is, I would say, no, we are not yet out of the woods, to be honest with you. And particularly in emerging markets where we can see that some countries are currently suffering renewed outbreaks of the virus and its variance, it’s going to continue to be the case. And so, this is something that we have to take into consideration when we are looking at all these kind of uncertainties that we are seeing across the world. Meaning that we need to adapt ourselves in term of asset allocation standpoints.
Well, talking exactly about this, we see that the vaccine has raised hopes for recovery, but that exactly between different countries and in particular emerging countries, it can vary greatly in terms of rollout and thus, of course, in terms of impact on the economies. How exactly is this affecting the overall asset allocation and investment impact in terms of geographies for a global player like yourself?
“So you’re asking me about much more of the impact on the overall asset allocation. And I would answer that despite those uncertainties, there are, of course, plenty of opportunities for returns everywhere, and in each and every market, and especially for active investors who really can choose the companies in which we invest. So typically, we can look at those companies that have been left behind because of any fault of long-term prospects, has been overwhelmed by the virus and locked down. So, this is something as well. And from a sustainability perspective, this crisis is going to change massively as well, the way and when and how the company is going to behave to in the future. And this is something that we are taking into consideration. It is also that you say that… I guess I would say that most importantly now will be held in every aspect, if I may, of our lives in every part of the globe.
So I think it is really particularly important in the aftermath of such a crisis to really focus on what matters the most obviously, and which probably explain their current increasing interest. We are all witnesses on thematic solution, because there is a lot happening on that aspect, and particularly when they are linked to the UN SDGs. So, this is a big shift that we are starting to see. And obviously, we have to take into account the different parts of the role. When we look at the recovery of Asia, for example, in the China market, it has been phenomenal last year. It’s going to continue, but we have to be prepared and we have to be quite agile in terms of asset allocation going forward, I believe, because it’s not the end, unfortunately.
Let’s change towards another topic that has some tectonic consequences, which is Brexit. It has become a reality since the beginning of January. How is Schroders adapting to life of the Brexit?
“Glad, to answer your question directly, Nicolas, I have to say that, I think I can tell you that life hasn’t really changed for us since the end of the transition period. And as a group with a very quite extensive London-based, I would say, management capabilities, we have effectively been ready out for a no deal Brexit for month. So this was largely anticipated, I have to say. And our diversified business model and significance along standing presence in the EU 27, means that we are very well placed to continue to service our clients and to grow our business. And in reality, when we look at the way that we are operating, of course, Luxembourg funds range and our UK range is continuing to be marketed. But the UK range by the way, was not used a lot with our European clients, for example, as well as by the way, with the Chilean client and Asian clients.
So, for us this is something that it’s not going to impact us quite a lot. And also… Because here we are talking about much more the usage of products, but when it comes to, I would say mandates and dedicated funds, for example, we were also preparing, and we have taken the necessary measure to make sure that we’re going to be able to onboard that in Luxembourg and so SIM Europe, which is our UCITS and AFM license, we already to operate everywhere.
But it is fair to say that as well, it’s a great opportunity for us, in Europe, to really try to showcase the fact that we are going to be, and I hope we are very unified, I would say, region, and also to use much more the local investment help that we are having. And so, what we are doing at the moment and looking into is to expand even further on the investment help that we have, for example, in Paris, for example, in Frankfurt, in Munich as well. So, this is really something that we are looking in order to ensure that we’re doing also to be ready to finance the real economy, the local fight, and the local Surrey real economy, because it’s happening everywhere. And we want to be really close to that, because we believe that we have a role to play in that journey.
And what could, for instance, that you do in order to deepen the asset management market within the single market?
“I think at the moment we are looking at EU integration of the single market, it is true. I think that the Brexit relocations have also underlined that the EU single market is very attractive and remains very attractive. And so, this is a very good use as I was saying. And so, we should leverage the full scale of this unique, I would say market, by limiting remaining obstacle, and to really ensure and allow the movement of capital and services as well as by creating innovative framework or more innovative framework or very new financial activities as well.
So, I really expect and hope it’s going to happen. And because it’s a huge opportunity today to ensure that we are going to be also one voice. I have to say that if I do a parallel, I’m doing the same thing within Schroders as the Head of Europe and Middle East. It’s really important for all of us to be seen and to be perceived as one unique single market at the end of the day. So, I’m sure it’s going to evolve. And definitely, I’m very positive and optimistic that it’s going to happen. And so for us, it’s a real benefit at the end of the day as well.
You mentioned before that Schroders has historically been and still remains an active specialist. While active is definitely not dead, it is facing trying times. What do you see as the future of active management?
“So… Right. It’s fair to say that also at the beginning of the interview, Schroders has always been an active asset manager, and we wants to continue to be so. And because we believe that we can bring really a lot. And by the way, it is something that we can look at the past as well, but it’s complimentary at the end of the day. And the use of the passive is sometimes not at all the same than for the active asset manager. And so for us, it’s really important. We are convinced that a forward looking active investment approach is needed to really comprehend the impact of all the forces. And this is something that we have been able to showcase by delivering very strong results and out-performance. And if I can take just very few example, when I look at the results, for example, of just some funds, but up and last year in terms of out performances, this is, sometimes we are seeing a plus 30% compared to a benchmark in China. It’s 40% by the way, from a China product.
But when you look at as well as the global equity product, we’ve been able to add additional 12% of alpha, and even within the credit and fixed income area, we have products such as sustainable Euro credit, which have also outperformed by 3%. So, meaning that the way that you are going to invest and the way that you continue to invest and to look at every single opportunity is really important, and it’s going to be looked by our clients and continue to be used by our clients.
And so, I think we can be able to have the other two at the same time. It is fair to say that in term of pricing, sometimes it’s not the same, but I think that there is a cost also to pay to add alpha. And by the way, all financial industry and asset management, we all know that we are seeing a few pressure. This is something that is happening, and this is something that we are onboarding as well in order to ensure that we adapt ourselves and to answer to that client need as well. So, at the end, I think it’s positive and it’s still positive to always have also a competition out of there, in order to shake up and to stay alive and to continue to innovate more and more.
Let us look a little bit also towards the future of finance, which will obviously be sustainable. How much actually of a reality is sustainable finance today for Schroders?
“Yeah. I think we see ourselves, again, long-term active owners of our client’s capital. And this philosophy naturally leads us to focus on the long-term prospect for companies in which we invest. So today, there are, I think, really three dimensions in investment; return, risk and impact. We now see a fundamental shift in how companies have and buy or understanding the impact that companies have on society and the planet is crucial in also determining their true cost, and ultimately their impact adjusted profits. So, all of our investment desks integrate now with all these ESG factors into their investment process. And as an active ownership, it’s a core part of our approach, our sustainability, which is a specialist and an analyst as well within the investment thus engage with this company all day long. And we want to encourage them to transition towards a much more sustainable business model.
So, this is a real trend that it’s here to stay, and you see it’s going to continue. And, I believe that it’s really going to help and support the future growth, although the longterm. So for us, it’s really important. And the way that we have developed this internally, it’s through our own proprietary toolkit called impact IQ. And it’s to measure the impact that companies have on society and the environment. We develop these tools based on over more than 20 years of ESG investment experience.
And the way that we used as part of our investment process, impact IQ looked into the externalities of companies, the risks that unsustainable practices oppose to their business as well obviously, and the overall alignment with the UN SDGs. And so, as I was mentioning, this is something that is happening a lot. And so, we are really trying to engage and to have this really open dialogue with the companies, as well as obviously, and I’m not going to develop too much, but in terms of exclusion, this is also something that we are having a lot of discussion with our clients in order to ensure that they are taking this into account, and that we also manage product with this quality ethical screen to meet our client’s requirements.
But really, I would say, again, we are really convinced that we can often make a bigger difference while engaging rather than simply excluding, or it’s really something important so that we are keeping in mind and as a philosophy, as well, investment.
And how are you preparing, for instance, for the new disclosure requirements that will be imposed coming soon?
“Coming very soon, too soon. So we all have to adapt to the Sustainable Finance Disclosure Regulation. We changed it by the way, to reorient investment towards a more sustainable economy, which is a positive development. So we have to take it down that way. It is fair to say that this regulation has a number of implications for asset managers, offering funds in the EU mainly, affecting the way that funds are categorised and markets with regards to their approach to sustainability. This is something that we still have a little bit of uncertainty in terms of around the technical details per se. So, we are adapting ourselves, and we know that March 10th, is going to be key for of all of us. And we have taken a conservative approach for our first wave of product categorisation. And by doing so, we have certainty that our funds meet the requirements of the article eight and nine. And we have classified our product using a positive relative impact risk measure score as the threshold for article eight.
And these funds constituents our sustainable range, to start with, while our impact goals arranged, aligned to SDGs, will be article nine. So, this is the way that we are approaching that. And, it’s going to evolve. We are also looking into and almost ready for the second wave as well. So meaning that the entire funds range is looking into a lot of scrutiny in order to make sure that we’re going to make it up. And thanks to our proprietary tool that I was mentioning called Systemics. It helps us massively to make this happen and to be very active around that. So this, for us it’s key. But it is fair to say that it was a little bit challenging in terms of the implementation, if I may.
Now, in order to make sustainable finance more mainstream, what would be needed to help it being accelerated going forward?
“I think… We were talking about regulation, but I think regulation, of course, is going to favor that. So this is something that we have already discussed, but above all initiative, I would say goodwill as well. Because, this is important. And this starts with corporate responsibility to our minds. And at Schroders, we take numerous initiatives to promote environmental and social consciousness and we encourage, inclusion, diversity, the mental health, this is boosted at every level of deferment. And I would say more broadly in the industry, which is really good, I believe, and to be concrete, as an example, what I can say is last December, Schroders has been founding member of the Net Zero Asset Manager Initiative.
And our CEO as well, Peter Harrison also sent a letter to the UK Loungers companies in the FTSE 350 index asking them to publish details and fully cost transitioned clients on climate change. So this is a way where regulation, as well as the industry leaders may influence going forward. And I believe that we are really having this important role to play, because it’s a part also of our DNA, but more importantly, it’s also for the future, the future world. And so for us, it’s really, really important.
As we come to the end of this podcast, let me ask the final traditional question which is very simple. If you have read any book recently that you would like to recommend to our audience?
“Yes. And I have to say that you’re going to be surprised by the book that I’m reading probably. But one thing that I can say is… And I can share that with you. It’s my little secret, If I may. I’m completely passionate about horses. And I’ve been lucky enough to, I would say, ride a lot since I was six years old, so you can imagine. And also, I have horses around me. And two years ago, I started with my husband to decide to create and to build our own breeding farm. And we had six foals in 2020. And the book that I’m finishing reading at the moment to do the link to here is really dedicated to in breeding and outsourcing in race-horse breeding.
And I can tell you that it is very, quite technical, but fascinating, and it’s also referring to the story of horses, as well as the need to evolve and to think differently about breeding. And so, here, it’s really a parallel where everything is evolving so much everywhere. The same is happening obviously the horse breeding, and so, it forces you to think really out of the box and to try to reason in a completely different way. And I have to say that it has been a fascinating book, very specialised as I mentioned. But, if someone like horses, it’s really, really interesting to look into.”
Well, thinking outside the box is certainly what is a good recommendation always to anybody. So, thank you very much for sharing your insights with our audience. And thank you also to our listeners who have tuned in again to our podcast. In our next episode, I will be speaking to Michael Cole-Fontayn, the chairman of the Association for Financial Markets in Europe, or AFME, to discuss progress towards the capital markets union, and of course, many other different topics. To stay up to date with our podcast, please feel free to subscribe on iTunes, Spotify, or Google. You can also find more information on our website, luxembourgforfinance.com.