Once seen as a niche area, investing in environmental market solutions such as resource efficiency and renewable energy has become a more mainstream thematic opportunity – with Impax Asset Management one of the larger players in the sector.
Founder and chief executive Ian Simm has now spent 18 years as the head of the firm, and maintains the trend is a long-term one with more growth ahead.
Mr Simm outlines how, after graduating with a degree in physics, he became interested in environmental markets following the Brundtland Report, published by the UN World Commission on Environment and Development in 1987, which was effectively the first blueprint for sustainable development.
“I was fascinated by that and for the next eight years did a variety of things: I put an expedition together to west Africa to do some applied physics on the edge of the Sahara desert; I worked as an environmental consultant; then I did a masters degree in economics, which allowed me to compare ways of solving environmental problems using public- and private-sector money,” he says.
“I came to the conclusion there was an amazing opportunity for the private sector to mobilise capital to help address environmental problems and lay the foundations for sustainable development.”
Following further roles, including a stint at McKinsey in its sustainable development practice in the Netherlands, Mr Simm returned to London to work in corporate finance with an early-stage company that was to be the predecessor to Impax, helping companies in the renewable energy and waste sectors to raise capital.
“Inevitably, it was a lumpy business,” he says. But in 1998, the firm secured a contract from the World Bank’s International Finance Corporation to help design and run a solar energy fund, “and that was the foundation client of Impax Asset Management”.
“If you jump forward to today, over the last 18 years we’ve been able to demonstrate it is possible to make money for institutional investors and private individuals by investing in private and publicly traded companies that are solving environmental problems,” he says of a business that now has £3.6bn in assets.
Mr Simm says the investment matter appeals to both retail and institutional investors as it can offer “superior rates of top-line revenue growth as well as earnings growth, and there’s plenty of evidence that assets are mispriced or misunderstood because there is a lot of changing regulation and technology, as well as lots of M&A activity”.
But he acknowledges that, while it is growing in popularity, there is “some evidence that it’s not for faint-hearted investors”.
“It is possible to slip up on the proverbial banana skins – electric vehicles, for example. Tesla is a volatile stock, trading on some scary multiples of current revenues. Batteries for electric vehicles and even some renewable energy companies – solar panels and biofuels – have been volatile. There is a compelling logic to buying a fund, a portfolio, which is run by specialist investment managers who know about these trends.”
Impax’s business has evolved steadily in the past two decades, with the first long-only product developed in 1999 at the request of a Danish banker who believed environmental technology (ET) would be as big as IT. “In early 1999 it was a fairly radical thing to say,” recalls Mr Simm.
Together with his colleague Bruce Jenkyn-Jones, Mr Simm established a listed equity portfolio of companies that were “solution providers” in the environmental space; designed a classification system to define the concept of environmental markets and create an investment universe; and also established a benchmark – the Impax ET 50 index.
“The Danes raised money and allowed us to sub-manage that [fund],” he says. “That was the start of our long-only business, which is now 90 per cent of our assets and three-quarters of our revenues.”
In 2001, the firm listed on AIM “by reversing into an established AIM company that had some cash and changed its name to Impax Group”, and in early 2002 the firm raised £50m as it launched the Impax Environmental Markets investment trust. The trust is now more than £400m in size, making it the “largest closed-ended fund in the UK targeting listed companies in the environmental space”, according to Mr Simm.
But it’s not just equities where Impax is finding opportunities. In 2005 it launched its own private equity fund, and in 2014 expanded into another asset class by acquiring a small property investment business.
| CV |
2013-Present - Non-executive director and member, Natural Environment Research Council 1998-Present - Founder and chief executive, Impax Asset Management 1996-1998 - Consultant, Impax Capital 1993-1996 - Engagement Manager, McKinsey & Company 1993 - MA in public administration, Harvard University |
Environmental, social or sustainable investing has become more mainstream with the introduction of environmental, social and governance ratings from firms such as Morningstar and the introduction of new ‘green indices’ from the likes of FTSE Russell.
“There has been phenomenal growth in the number of investment opportunities we’ve been able to look at,” acknowledges Mr Simm. “When Bruce and I did the review for the Danish company [in 1999], there were 250 companies that fit the criteria, today there are about 1,100.
“Another trend is the area we’re investing in has moved from being niche to being well accepted and considered a mainstream thematic opportunity. We’ve also realised there are opportunities to use our skills and expertise not just in listed companies but also in real assets. That resonates well with the idea that in a world of sluggish economic growth and relatively high valuations for fixed income and, to a certain extent, equities, asset owners are increasingly looking at alternatives.”
So when the first fund was established in 1998, did he think the firm would have evolved the way it has? “It had good underlying prospects and credentials, so there was no reason it couldn’t carry on growing,” he says. “I admit I didn’t have a particular vision of how big it could get, or that I’d be in the same role two decades later.”
Having survived two market crises, in 2002 and 2008, the business appears to be on an upward trajectory with its Irish Ucits platform offering UK investors access to five of its strategies, as well as the listed equities, property and private equity businesses. So where next?
Mr Simm points out: “We’re in a phase of rapid growth. In the six months to the end of March 2016 our assets grew by 26 per cent. We are growing our business in all areas and growing our client base across continental Europe and North America. We’re pretty busy at the moment trying to focus and make sure we deliver good returns for clients.
“We are definitely not minded to be doing lots more innovation – [we’re] much more focused on scaling up what we’re doing. We are determined to deliver a high-quality return and exemplary client service, and part of that is not extending our client base too much but also going the extra mile in communicating what some of these impact and research issues are, as they’re very topical.”
He adds that due to the nature of the investment, clients tend to take a medium-term view and “probably more often than not, providing we’re communicating properly, they are willing to accept a little more volatility than from a generic product”.
Looking ahead, the level of interest in the subject area continues to grow with Mr Simm confident that “in five years we could be considerably larger [than now] by doing more of the same without a significant increase in headcount”.
The firm has already set up a research team in Hong Kong to cover the Asian market and has service teams on both the east and west coasts of the US.
But he adds: “For investment managers who have a good, strong, long-term investment philosophy, the best thing to do is keep it simple. Scale up what you are doing and try to avoid too much complexity.”
