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Active management offers engaged stewardship and responsibility

Therese Niklasson, Global Head of ESG
We believe that embracing ESG issues is part of the fiduciary duty we owe to our clients.

In the face of growing interest in passive investments, we remain confident of the benefits that actively managed investment solutions offer investors. With environmental, social and governance (ESG) factors gaining more prominence in the investment world, active managers are increasingly integrating these factors in their investment process. We believe that active management offers engaged stewardship and responsibility in an ethically conscious world. This contrasts sharply with passive management, which has no choice but to hold a company share that is part of its target index, whether or not it meets ethical standards or guidelines.

Is active management dead?

Pick up any publication related to the asset management industry, and you will likely see a prediction or a call for the death of active investing. Over the past decade, the growth of assets into passive vehicles has turned exponential. This trend began with the 2008 global financial crisis, from which point there has been a change in fortunes even for the fully-flexible, premium end of the industry (Figure 1).

Figure 1. The rise of passive investing

Hedgefund performance relative to S&P 500 & ETF AUM growth.

Source: Bloomberg, Investec Asset Management HARP 30 September 2017

What are the potential side effects of the rise in passive investments?

We believe that some investors may be overlooking the key stewardship role that only active managers can effectively play. If active management is indeed declared dead, there will be long-term negative impacts on the broader economy. It may reach a tipping point that exacerbates many of the worst attributes of financial markets. Some of the potential side effects include:

Poorer allocation of capital

In order for capital markets to function optimally, it is crucial that they are liquid, transparent and act as a mechanism for efficient capital allocation. At a company level, active managers play an important role in ensuring that markets have these characteristics. Only through a fundamental understanding of company strategy can investors facilitate efficient capital allocation which, in turn, is an important driver of economic growth.

Decreased support for new companies

Passive funds will not take a strategic decision to support a new company with an anchor shareholding in an initial public offering. If companies cannot raise funding in the equity market, they will have to raise debt funding and possibly become over-indebted and vulnerable to the interest rate cycle. There is a real danger that they won’t raise any funding at all – entrepreneurship will be stunted, innovation will slow and economic growth will suffer.

Decline in shareholder oversight of company management

Passive managers take no view on the quality of a company’s management or long-term strategy. Thus, they have little opportunity to provide shareholder oversight of company management, their environmental practices or their labour policies. Since the financial crisis, there has also been a greater focus on assessing companies against ESG criteria. These cover a wide range of complex issues that are becoming increasingly important to investors. Examples include: climate change impact and opportunities, carbon emissions, supply-chain oversight, and labour relations and remuneration.

Looking forward: active management and ESG

As a responsible active manager, we play a meaningful role in promoting appropriate systems of governance, and the sustainable management of environmental and social factors for the companies in which we invest. We monitor, evaluate, and if necessary, actively engage or withdraw investments, with the aim of preserving or adding value to our clients’ portfolios. Of course, we consider these issues in the context of company valuations and the overall portfolio.

As an industry, this approach to active management may have material positive implications for the market and, in the longer term, for society. In a world where investors are increasingly becoming more socially responsible and understand the need to create an environmentally sustainable future, passive investing may not address their needs. Individual client requirements are also playing a greater role with exclusion-based mandates no longer sufficient to link ESG to client preferences. It is clear to us that ESG integration across our investment strategies is in the long-term interests of our clients and the wider society.

We believe this will be one of the most important topics in markets in the coming years and underpins why we have focused on ESG integration over the last few years. Active managers have real power to influence companies in the interests of investors and wider society.

Our approach to stewardship

We aim to preserve and grow the real purchasing power of the assets entrusted to us by our clients over the long term. In fulfilling this purpose, we assume a stewardship role, including the effective exercising of our clients’ ownership rights. We monitor, evaluate, and if necessary, actively engage or withdraw investments with the aim of preserving or adding value to our clients’ investment portfolios.

Our commitment and approach to stewardship is underpinned by a robust Stewardship Policy1 which outlines our key priorities and principles, and is available on our website. All our ESG-related policies and activities are overseen by an internal Investment Governance Committee (IGC). We have been building a global ESG capability since 2011 to manage and execute the stewardship mandates throughout the business. For more information about our Stewardship activities in the financial year 2016-17 please read our Annual Stewardship Report

1 Investec Asset Management’s stewardship statement can be found at Our recently launched sustainability initiative highlights how we will act as a firm.


Important Information
The information may discuss general market activity or industry trends and is not intended to be relied upon as a forecast, research or investment advice. The economic and market views presented herein reflect Investec Asset Management’s (‘Investec’) judgment as at the date shown and are subject to change without notice. The value of investments, and any income generated from them, can go down as well as up and will be affected by changes in interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets invested in.

There is no guarantee that views and opinions expressed will be correct, and Investec’s intentions to buy or sell particular securities in the future may change. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. Investec has prepared this communication based on internally developed data, public and third party sources. Although we believe the information obtained from public and third party sources to be reliable, we have not independently verified it, and we cannot guarantee its accuracy or completeness. Investec’s internal data may not be audited. Any decision to invest in securities or strategies described herein should be made after reviewing the prospectus and conducting such investigation as an investor deems necessary and consulting its own legal, accounting and tax advisors in order to make an independent determination of suitability and consequences of such an investment. This material does not purport to be a complete summary of all the risks associated with this Strategy. A description of risks associated with this Strategy can be found in the Prospectus or other disclosure document for the fund or Strategy. Copies of such documents are available free of charge upon request. Investec does not provide legal or tax advice. Prospective investors should consult their tax advisors before making tax-related investment decisions.

Investment Team
There is no assurance that the persons referenced herein will continue to be involved with investing for this Strategy or Fund, or that other persons not identified herein will become involved with investing assets for the Manager or assets of the Strategy or the Fund at any time without notice.

Investment Process
Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.

Performance Target
The target is based on Manager’s good faith estimate of the likelihood of the performance of the asset class under current market conditions. There can be no assurances that any Strategy or Fund will generate such returns, that any client or investor will achieve comparable results or that the manager will be able to implement its investment strategy. Actual performance of investments and the Fund or Strategy overall may be adversely affected by a variety of factors, beyond the manager’s control, such as, political and socio-economic events, adverse changes in the interest rate environment, changes to investment expenses, and a lack of suitable investment opportunities. Accordingly, Performance Targets may be expected to change over time and may differ from previous reports.

Specific Portfolio Names
References to particular investment or strategies are for illustrative purposes only. Unless stated otherwise, the specific companies listed or discussed are included as representative of the Strategy or Strategies. Such references are not a complete list and other positions, strategies, or vehicles may experience results which differ, perhaps materially, from those presented herein due to different investment objectives, guidelines or market conditions. The securities or investment products mentioned in this document may not have been registered in any jurisdiction. More information is available upon request.

Indices are shown for illustrative purposes only, are unmanaged and do not take into account market conditions or the costs associated with investing. Further, the manager’s strategy may deploy investment techniques and instruments not used to generate Index performance. For this reason, the performance of the manager and the Indices are not directly comparable. 

If applicable MSCI data is sourced from MSCI Inc. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.If applicable FTSE data is sourced from FTSE International Limited (‘FTSE’) © FTSE 2017. Please note a disclaimer applies to FTSE data and can be found at