Nick Wood, CEO and CIO of Resonance Asset Management, gives New Private Markets his take on the ESG backlash, the slower fundraising market and the firm’s investment strategy.
How would you characterise the fundraising market in H1 2023?
We have seen a lot of interest in our sustainability strategies. However, some institutional investors remain challenged in their scope to allocate to illiquid assets at scale at the moment because of falling fixed-income portfolio values and, in the UK, the fallout from the impact of the liability-driven investment-induced losses in September 2022. Nevertheless, they and we expect allocations to recommence later this year and into the next.
Has the political backlash against ESG affected your business? How do you feel about it?
We have not experienced any change in approach from institutional investors in recent months. Most are in the process of developing high level asset allocation strategies to address ESG opportunities and threats, and we expect this to be an ongoing process as it potentially covers their entire asset base.
As ESG has an unavoidable political dimension, we believe there will inevitably be high profile media stories from time to time. This does not mean the issues, especially involving climate and environment, have changed or ‘gone away’. These themes will continue to provide investment opportunities and challenges for investors.
The impact investing market is scaling up and going mainstream; how is this affecting your business?
We see a substantial increase in interest in our strategies, especially as they both provide environmental impact but also a predictable risk-adjusted return suitable for pension fund investors.
Which impact themes, sectors or strategies do you see as being most exciting and untapped?
For us, the focus is on infrastructure investments that treat waste water and supply clean water to industry, and on-site renewable energy generation supplying industry with low-cost, captive behind-the-meter energy from solar PV and bioenergy reactors.
Which impact themes, sectors or strategies do you plan to avoid because they are over-capitalised?
We think there are a wide range of attractive opportunities globally in our focus, but most particularly in Southeast Asia, Australia, Northern Europe and North America. We tend to avoid infrastructure investments in those countries with weak legal systems for the enforcement of contract and property rights.
Certain renewable energy investments also tend to lack any pricing power and so are vulnerable to prolonged periods of general energy price weakness (unless underpinned with appropriate fixed subsidies). But generally, we see very significant demand for capital across all sectors we cover and economically viable investment opportunities arising.