Simon Smiles, chief investment officer for ultra high net worth individuals at UBS Wealth Management.  (Photographer: Michael Nagle/Bloomberg)

Davos 2019: UBS To Beef Up Sustainable Investment Portfolio Through Tailor-Made Instruments

UBS Group AG plans to fulfill its clients’ appetite for sustainable and impact investments through personalised instruments.

“The preponderance of sustainable investment instruments is currently available on an aggregate basis and not personalised basis,” said Simon Smiles, its chief investment officer for ultra high net-worth individuals, told BloombergQuint on the sidelines of the World Economic Forum in Davos, Switzerland. “The appetite among our clients tends not to be much about investing in the environment, social and governance issues but in helping in specific issues like water accessibility or climate-related problems.”

Sustainable investments have seen significant growth over the last few years, said Smiles, adding the asset base tripled to $4 billion and had a great market performance despite the broader issues in the macro-environment.

Smiles said Indian assets were not as attractive to global investors as they were five years ago. “Focus has gone to China and U.S. each with a lot of government support and attraction rather than continuing to hope that there's a material and accelerated change in India.”

Watch the full interview here:

Here’s the edited transcript:

The Oxfam report talks on the rich getting richer and poor get poorer—will it play out on financial markets and what’s your outlook for 2019?

In 2018, most of the financial markets saw significant declines with respect to prices and values and almost all listed financial assets saw some decline. On top of that, you had a stronger U.S. dollar against other currencies further binging on the wealth of currencies other than U.S. dollars.

IMF has revised its 2019 growth outlook and said advanced economies are where slowdown will play out the most. Do central banks, governments have enough stimulus and tools in hand to tackle that?

What were have seen in the last six to 12 months is very much of what we will see this year— volatility. At the end of last year, there was too much pessimism. This year, we’re seeing growth. So next year growth is economically expected to be slower in the U.S., China, Europe and Japan. We are still expecting growth rather than recession. It is not just developed markets that are going to see lower growth but most of the large economics likely to see slower growth, like China for example.

What are the clients saying on various asset classes? Which will be the out-performer?

Private entrepreneurs have a growing concern about policy uncertainties like the U.S.-China trade policy. And, secondly uncertainty growing about U.S. government shutdown.

And regarding where Investors are looking fr opportunities, they’re investing less in mainstream investment mandates and mainstream equities. Increasingly, the clients we’re speaking to are still interested to hold diversified portfolio. They’re diversifying away from local currencies. And, they are increasingly asking questions about sustainability. There is a lot of appetite from clients to engage in sustainable investments. It has a positive impact and they have the same or better financial returns as traditional investments.

We have been hearing about sustainable investments for the last few years now. What is the share of sustainable investments out of the total asset categories?

Last year, we announced plans to launch the industries first true 100 percent sustainable investment portfolio. Rather than high-grade debt, we replaced that with World Bank debt. All the individual allocations in the equity side are to sustainable investing equity allocation- like fixed income green bonds.

Over last years, we have seen significant growth despite the broader issues of financial markets. Tripling of assets up to $4 billion and and a great financial market performance. however, that’s still $4 billion across an asset base of $ 2 trillion. So it’s a starting point. More broadly, the appetite for sustainable investing among clients tends not to be much about we want to invest in high environment, social and governance sectors but want help cure water issues, waste or climate issues. And, that’s where there is a big break down across industries as whole. The preponderance of sustainable investment instruments is currently available on aggregate basis and not personalised basis.

We are looking to this year is to increasingly call for people to actually have a recommendations for sustainable space that are not only expected of high financial out performance but also have a positive impact on range of specifics clients care about. And, not every client cares about the same things. If u map what exactly clients care about and model their portfolio and their allocations exactly to those specifics it’ll be different from one person to the next, I think it is a great opportunity to get more capital into sustainable investing because its more understandable to end-client than a high ESG covering that someone else imposes.

Where does India feature across different asset classes and Emerging Markets portfolio?

There is less focus on Indian assets than it was four to five years ago.  Focus has increasing gone to China and U.S. each with a lot of government support and attraction rather than continuing to hope that there was a fundamental, material and accelerated change in India.