Trans-Atlantic Partnership

Joe Keefe, president and CEO of Pax World Management LLC, is clearly focused on the benefits to his firm of being acquired by Impax Asset Management Group plc (Impax), subject to certain customary closing conditions, including approval of the investment advisory and sub-advisory agreements by the trustees and shareholders of Pax World Funds.

Pax World Funds, a pioneer in the field of sustainable investing with approximately $4.5 billion in assets under management (AUM) as of September 30, 2017, announced on September 18, 2017, that it has entered an agreement to be acquired by Impax Asset Management Group plc (Impax), a U.K.-based firm with approximately $9.4 billion in AUM as of September 30, 2017. Impax is a leading independent investment manager specializing in opportunities arising from the transition to a more sustainable global economy.

“This is an exciting new chapter in our decade-long partnership with Impax. We believe that combining our two firms will create a leading sustainable investment manager with business on both sides of the Atlantic,” says Keefe. “Pax World Funds’ shareholders stand to benefit in significant ways from our increased scale, research and investment capabilities as we seek to deliver a more robust investment and distribution platform for the global market.”

Impax and Pax formed a partnership in 2007 to design and manage the Pax Global Environmental Markets Fund, which was launched in 2008 and today has over $500 million in assets. The acquisition by Impax will create a combined investment management firm with $13.4 billion in AUM and significantly expanded investment management, research and client service capabilities (net consolidated AUM—not double counting the AUM of Pax Global Environmental Markets Fund). Both firms have a heritage as pioneers in sustainable investing and share similar corporate cultures and values.

Financial Advisor Solutions

I asked Keefe how this Trans-Atlantic partnership will help financial advisors implement ESG strategies in the United States, beyond the significant benefits of scaling research and investment diversification. “We’re seeing a shift in the way advisors do business, in the way they interact with asset management firms. Our partnerships with advisors are going to be more about solutions and less about product than they have been during the last 20 years.”

“Increasingly, we want to provide solutions to financial advisors and their clients. We want to know what the advisors’ needs are, find out what their clients are looking for, and see whether we can offer solutions. We think sustainable investing has become a value-added solution, because increasing numbers of investors want to align their investments with their values in ways that tackle major global issues like climate change and gender inequality. This is the direction the world is heading. More people want to invest in this way and more advisors are getting requests from their clients for this type of investment strategy. We want to partner with advisors and work with platforms to help them accomplish this.”

Keefe sees sustainable and impact investing as fundamental to the transition from an industrial-age economy fuelled by coal and oil to a low-carbon economy fuelled by energy conservation, energy efficiency and renewable energy technologies. “That transition is taking place globally, and it’s an opportunity for the companies that are leading the way to outperform, and for the investment portfolios comprised of such companies to potentially outperform.” According to Keefe, this is something investors are increasingly asking for from Pax World and other managers of active and passive environmental, social and governance (ESG) strategies, so advisors should consider them as part of the solution set for their clients.

From Keefe’s perspective, “There’s money to be made from this historic transition. I think the companies that lead the way are going to be very good investments, and investing in them is one of the things that we should all be doing, Pax World on behalf of its shareholders, and advisors on behalf of their clients.”

There are other solutions Pax World delivers to its advisor partners in support of sustainable investing portfolio integration, including the following three-part practice management series:

1. A general understanding of how sustainable and ESG investing can benefit client service and acquisition in advisor practices.

2. Women and Wealth, which helps advisors attract and retain women clients, as well as work more effectively with current women clients.

3. Millennials and Wealth, which helps advisors to use the same lens that millennial investors use when considering how to deploy long-term investment capital in the markets.

When an advisor expresses interest in any of the practice management programs, their Pax World partner might provide current research, support with client meetings, offer to do client education events or schedule conference calls with members of investment management teams. This is where the global reach and scale of a parent company like Impax is making a difference in the depth of resources available to advisors.

“A lot of advisors tell us they are getting questions from their clients, or are proactively searching for better solutions for their clients, and looking for ways to grow their practices. For several years now investment industry research has been showing that trillions of dollars in wealth is heading in the direction of women and millennials as a matter of demographic reality. That same research,” emphasizes Keefe, “strongly suggests that women and millennials look at investing differently than do older white males who control most of that wealth today and will be survived by the women and millennials in their lives. These two groups of investors are increasingly interested in ways to make their money part of the solution rather than part of the problem and understand the impact of ESG issues on a company’s balance sheet.”

The intersection between data and demographics is fuelling rapid growth in sustainable and impact investing. Keefe believes this is a long-term secular trend that advisors should be aware of and prepared for as fiduciaries, as well as take advantage of to grow their practices. “It’s a strategy for getting ahead of the curve and building your practice for the next generation of investors and advisors.”

The Active Versus Passive Debate

I asked Keefe where he stands in the active versus passive asset management debate, since Pax World manages both active and passive mutual fund portfolios that include smart beta strategies. Here is what he had to say.

“I’m a bit agnostic on this topic, Paul. Different solutions work for different investors, and I think it’s the advisor’s obligation, working with trusted asset manager partners, to provide the best solutions for each client as opposed to a one-size-fits-all approach.”

“This active versus passive debate has been around for some time. It goes back to Jack Bogle and the founding of Vanguard, and Burton Malkiel’s, A Random Walk Down Wall Street, first published in 1973. The debate is as healthy as it’s ever been, and there’s no doubt a lot of money is going to passive strategies, particularly ETFs. I personally believe that active, passive and smart beta, which is sort of a hybrid of active and passive, will all continue to be alternatives for advisors and asset managers, and I do think it will depend upon the needs of the client. For example, there’s still a strong argument that active management can really deliver value in less efficient markets, like small cap or emerging markets.”

“There’s no doubt that passive management is increasingly an option in highly efficient markets, like U.S. domestic large cap, so I think we’ll continue to see it have success there through index-based ETFs. I view ETFs, however, as more of a tactical investment vehicle than a strategic investment vehicle. They are a way to get exposure to certain parts of the market.”

Keefe concludes, “Long-term investors will continue to avail themselves of mutual funds in addition to ETFs, and I think they’ll continue to avail themselves of a mixture of passive, active and smart-beta strategies.”

Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.