Shant: We have tended to take the view that if engagement with companies hasn't worked within a couple of years, it probably isn't going to. Within a two- to three-year time frame, engagement should be working, and there should be visible improvement in key performance indicators.
By starting out saying, “We want to have these multi-year engagements, and that is a key part of our investment proposition,” it becomes — when we are having conversations with existing clients or prospective clients or consultants — a self-weeding garden, if you like, because people will self-select out. We target turnover rates between 20% to 33% per annum over a three- to five-year time horizon because we believe that that is the only time horizon to try to implement change in the real world and to be able to see that change. And so that is what we say at the very outset of our conversations with those clients. Publicly traded equities might be very liquid, but that's not the point of this strategy. There are many other strategies you can go to if you want to go in and out on a quarterly basis.
So those people for whom it is immediately innately uncomfortable to look at a longer-term horizon remove themselves from that conversation. And that's fine, because these strategies are not for them, and we're not the right manager for them either. So it saves everyone time if we establish those ground rules from the outset.
Brenner: I love Raj's concept of the self-weeding garden. In the private-debt space, the investors we are talking to in most cases are matching long-dated liabilities with our long-term investments. So we are already at a good starting point for the conversation. But it always comes back to the investment thesis and the educational process that leads each investor to their unique definition of impact investing. It means a lot of things to a lot of people. But it only matters what it means to your organization, and you have to decide where it is going to fit within your investment portfolio.
It really is the upfront discussions around establishing what they mean by impact, determining the investment thesis, deciding where it is going to fit within their portfolios and then how it is going to be benchmarked. And if we get a lot of those questions done upfront, if you do the fundamentals upfront, maybe, in some ways, we have created that self-weeding garden. Because Raj is right, if we get into a conversation very early on and someone immediately says, “I'm not interested in impact outcomes,” well, it becomes a fairly short conversation.
Bernhardt: There are very few asset owners that I know of that claim to be short-term investors. Almost all want to be, try to be or claim that they are long-term investors. I would argue that the symbiosis between long-term investing and sustainable investing is such that they are sort of mutually dependent on each other: You can't be a sustainable investor without being a long-term investor and vice versa. So I think there is a growing recognition among the asset-owner community that those two methodologies or approaches to investing are symbiotic, and you can actually achieve long-term investment outcomes while considering sustainable inputs to the process. Some of the challenges that we come across are the dominance of old ways of doing business. For instance, in an asset allocation framework, we are tied usually to specific asset classes. Impact investing isn't an asset class, even though some investors want to treat it as such. It cuts across different asset classes. The opportunity exists in private debt, public debt, private equity and public equity.