ESG regulations across the world, and not just in the region, need to be worked upon, says Ross Whatnall.
Thematic investing has hit the ball out of the ground in the past few years as investors are looking to take part in global trends that are impacting the world and producing wealth generation opportunities.
Ross Whatnall, founding partner at GSB Capital, sees massive opportunities in clean energy and sustainable agriculture. With rising oil prices, energy consumption patterns have changed. Emerging markets are seeing record investments in clean energy on their way to energy transition.
‘Clean energy and sustainable agriculture have become competitive investment propositions. Increasing demand and cost reductions have significantly changed the landscapes,’ he told Citywire Middle East.
Another theme that Whatnall suggests looking out for is cybersecurity. ‘The importance of cybersecurity can’t be overstated. This presents a significant ground for investors to play the cybersecurity space with thematic funds.’
Named after his three children – George, Spencer, and Beatrice, Whatnall and his wife, Alison, received the licence for GSB Capital from the Dubai Financial Services Authority (DFSA) in April 2021. The firm currently does not have its own funds as it is involved in arranging and advising on third party funds for its clients.
‘We do a lot of lending for high-net-worth clients, locally and in Europe. We run model portfolios, which for example are a blend of different ETFs, real estate, developed markets blue chip equity to name a few.
‘And that would depend on the client’s risk as to how much exposure they have to these types of assets,’ Whatnall said.
GSB manages close to $1bn assets under management (AUM), out of which Whatnall runs more than $150m and expects the firm to surpass $1bn by the end of this year.
The founding partner aims to launch GSB Capital’s private equity fund towards the end of 2023. ‘The fund will have a philanthropic backbone to it. It will be focused on supporting charities and development for sustainable things,’ Whatnall said.
Focus on ESG
Investing in environmental, social and governance (ESG) is here to stay and has gained immense popularity in the region in recent years. The pandemic has exacerbated the need for ESG and put a focus on companies that follow the rules.
However, ESG regulations across the world, and not just in the region, need to be worked upon, Whatnall said. ‘Regulation is something that needs to improve globally. Greenwashing is a phenomenon that should be addressed.
‘In the region, regulatory authorities have been on their toes to ensure that any funds that are labelled ESG follow all those principles. It’s a lot of work, as more investment goes into that space, more options arise. That means it’s hard to keep control because there are so many funds out there. We need to be focused.’
He mentions one of the basics of ESG investing is negative screening. Negative screening is the process of finding companies that score poorly on ESG factors relative to their peers.
‘It is the job of the fund manager to screen the portfolio to ensure there are no negatives. It is therefore the flipside of positive screening, which seeks to identify the best performers for inclusion in a portfolio, using what may be the same set of qualitative measures.
‘Both negative and positive screening are always done in peer comparison.’
ESG and impact investing can no longer be considered a niche market. Companies that are having positive impact on the environment and society are in high demand. Governments are looking at such firms that are at the forefront of change and trying to be pioneers in their individual sectors.
‘This is where we want to focus our efforts,’ Whatnall said.
How to beat inflation
‘The answer is to take more risks,’ Whatnall advises. ‘In order to build a balanced portfolio to ride inflationary pressures, it should consist of real estate, emerging markets equity – preferably small cap – and developed markets equity as well.’
However, he predicts that bonds are going to struggle for the foreseeable future, particularly for the next two to three years. ‘Government bonds and corporate debt, which historically are deemed low risk in a portfolio, will face the brunt.
‘With the way things are now – high inflation and rising interest rates – I expect bond values to decrease. Hence, I advise to try and manage the risk, keep a higher cash exposure and less in bonds, and a significant equity build-up.’
Whatnall also urges his clients to invest regularly. ‘That’s wisely important. Something that people often overlook, particularly when there is volatility. If you are buying at a low point now, you will minimise volatility with the way you spread your risk.
‘An investor should stick to a plan. There is no need for a high commission, contractual savings plan. One should just commit to saving regularly in a low-cost vehicle.’
The prospects for the asset management industry in the UAE and Saudi Arabia are huge as governments are spending massively on real estate and infrastructure. The markets are awash with projects, which is strengthening the respective economies, Whatnall said.
‘There is no sign of slowing down anytime soon, as we see a huge influx of funds from Asia, Russia, Europe and the UK,’ he said.