 Delivering Alpha: What we learned from the conference The complicated future for the ESG investing boom  This summer, soon after "Ted Lasso" received 20 Emmy nominations, co-creator Bill Lawrence told Deadline, "The trickiest thing on this show is to kind of stay true to the Ted Lasso ethos, which is awards and winning don't matter as much as the people you get to spend time with and work with."
That sounds a bit like the ESG ethos: even though studies have shown a nominal link (at best) between investing in companies with environmental, social, and governance attributes and performance, fund managers are increasingly embracing more of a "feel good" portfolio.
For those who haven't seen the Apple TV+ show, which is set to release its season-two finale on Friday, the "Ted Lasso ethos" involves putting teammates above trophies. The premise centers on a football coach from Kansas, plucked from obscurity to lead a fictional English soccer team, known in the show as AFC Richmond. Despite the team's recent relegation to a lower league due to its sub-par record, no one seems too beat up about it. In fact, perhaps the biggest appeal of the show is Coach Lasso's unrelenting persistence in putting aside the Darwinian tenor that accompanies so many corners of an increasingly competitive society, in favor of under-appreciated traits like happiness and camaraderie.
Corporate America, for much of the last five decades at least, has operated in the Milton Friedman-style, dog-eat-dog mantra that the purpose of a corporation is to maximize its own profit at the behest of shareholders. Several years ago, a softer approach appeared in the Business Roundtable's proclamation that the purpose of a corporation is actually to benefit all stakeholders, not just shareholders.
That, in part, spurred a huge influx of capital into ESG-focused funds, which are now responsible for more than $2 trillion in assets.
The popularity of both ESG investing and Ted Lasso as a TV series can be attributed, in part, to timing. Their respective jovial bursts of optimism, stood in contrast to a year marred by a deadly pandemic, social unrest, political divide and natural disasters. Society craved a happy distraction.
But just as the "Ted Lasso ethos" has yet to earn Richmond a championship, ESG critics say there isn't a perfect overlap between purpose and profits.
Our Delivering Alpha team surveyed hundreds of large institutional investors, where the majority -- 54 percent -- said the ESG market is "over-hyped" and "isn't a good way to invest. The remainder said ESG plays an "important role" in how they make investment decisions.
As Tariq Fancy, the former CIO of sustainable investing for BlackRock, recently wrote in a "tell-all" Medium post : "After reading a few pro-ESG papers whose methods and conclusions I found rather dubious, something occurred to me: there's always money to be made from telling people what they want to hear."
On our ESG panel at Delivering Alpha last week, I asked CalSTRS Chief Investment Officer Chris Ailman whether the asset management industry is so focused on ESG right now because they want to be; or they have to be -- essentially, because that's the thing to do right now.
"There's no question there are some asset managers who are just using those words because it's a marketing tool," Ailman, who runs the country's second-largest pension fund, responded. "There are a few asset managers who actually believe it's material and important to their investment process."
So far, ESG marketing has been quite lucrative. A recent Wall Street Journal analysis found that fees on ESG ETFs were 43 percent higher than standard ETFs that invest in U.S. large cap stocks.
But as a fellow Kansan (I actually share a hometown with Jason Sudeikis, who created Ted Lasso and plays the eponymous title character), I admittedly share an unbridled optimism that the world will one day evolve to where the good guys (or companies) win.
At least in ESG investing, the actual means to that end are still a bit murky.
The first phase of ESG investing, now decades old, is this idea of divestment - screening out "polluting companies." In its most simplistic strategy: goodbye energy; hello technology. It's kind of like when Jamie Tartt, the bad boy, star player for Richmond, was taken off the field in season one by Coach Lasso to show him the team could still win games without Tartt's toxicity.
But then in season two, after Tartt's brief foray with a rival team and reality TV, he came crawling back to Lasso, seeking to rejoin Richmond. The coach, much to the dismay of his other players, welcomed him back, all while molding him into the team player he never was before.
A more-hands on approach is also emblematic of ESG 2.0. A recent activist campaign by an upstart firm called Engine No. 1 transformed Exxon's board earlier this year, thanks to its sustainability messaging. Instead of screening out an oil major, Engine No. 1 screened it in and then actively sought to change it. CalSTRS' Ailman was an early proponent of that plan.
"I wish divestment would solve the world's problems, wouldn't it be so easy and nice," Ailman said at Delivering Alpha. "Instead of just divesting Exxon, turning our back and letting somebody else own the shares, we took on that board, we changed the board, and we are really changing that company from the top-down."
Ailman said this "massive change" is going to take a "long time."
But in the meantime, should there be an expectation that investors solve the world's problems in the way they allocate their capital? Should we expect to see huge outperformance?
Not exactly, says Wendy Cromwell, the vice chair of Wellington. She looks at ESG, namely climate-change exposure, as a way of risk mitigation in her portfolio. So, for her, it's more about modeling the materiality of massive storms or fires or droughts and how that impacts various assets.
At this stage, it's not necessarily the golden ticket for alpha.
SPAC king Chamath Palihapitiya defends trend he helped make Chamath Palihapitiya, a prolific SPAC sponsor, defended the once red-hot IPO alternative vehicle and his own deals amid falling share prices and attacks from short-sellers.
"In the beginning of every market, you have a few people that pioneer something and then you have a lot of fast followers," Palihapitiya said at CNBC's Delivering Alpha conference last week. "I think we are in the midst of sorting that out and separating the wheat from the chaff, who are the quality sponsors, who underwrites good deals, and most importantly ... who has skin in the game."
Since his first blank-check deal with Virgin Galactic in 2019, the Social Capital Founder and CEO has brought five more SPACs to the market — Opendoor, SoFi, Clover Health, IPOD and IPOF. Palihapitiya revealed that he now has six deals on the technology side and six in the biotech sector in the works. He previously said he will eventually do 26 deals to cover every letter of the alphabet.
Many said Palihapitiya's high profile — tech billionaire, Golden State Warriors co-owner and Facebook's former executive — partly fueled the SPAC craze in 2020 and earlier this year when issuance hit a record and prices surge on rampant speculation. Now, as the overflowing market started to cool amid rising regulatory scrutiny, Palihapitiya's SPACs also pulled back significantly. Opendoor and Virgin Galactic are down 15% and 5%, respectively, in 2021, while Clover Health has tumbled nearly 57% year to date. IPOD and IPOE are also down double digits this year. 
Overall in the SPAC market, 97% of more than 300 pre-merger SPAC deals are now trading below their key $10 offer price, according to a CNBC analysis of SPAC Research data.
The investors said he's still proud of all four SPAC deals he's done. He said the defining factor that separates the good SPACs from the bad ones is whether the sponsors themselves have skin in the game. He suggests that SEC Chair Gary Gensler demand that sponsors put 5% to 10% of the capital invested in from their own pockets.
"The incentives aren't aligned to create great outcomes from the beginning of us back to the end of us back. And the most important thing we need to do is to force the people that are the sponsors to have much more capital at risk," Palihapatiya said. "I think Gary Gensler would be well off by saying, for every dollar of SPAC money you have, you want to raise five or 10 cents, needs to be your own."
Delivering Alpha Headlines Big thoughts from the big money Big investors see meager returns in the market going forward Expect much lower returns in the stock market after a swift rebound from Covid crisis, according to some of the biggest U.S. institutional investors. The response by central banks around the world to the pandemic has boosted equity returns to unsustainable levels, said Mary Erdoes, JPMorgan Chase head of asset and wealth management. "Since last year's Delivering Alpha, markets are up 30% to 50%, clearly not normal," Erdoes said. "We're enjoying it, but this is not a normal time period." Stock returns are likely to be "much more muted" going forward, while volatility will remain the same, according to Jason Klein, chief investment officer at Memorial Sloan Kettering Cancer Center.
Altimeter's Brad Gerstner cashes in travel trade, bought Peloton and Zoom on dip Altimeter Capital Chairman and CEO Brad Gerstner revealed his hedge fund sold stakes in United Airlines and Expedia, saying that easy gains from the rebound in travel stocks have been realized. The investor said he expects interest rates and stock growth multiples to normalize to January 2020 levels, as the world recovers from the Covid-19 crisis. He revealed that his hedge fund's net long exposure has been reduced to 50% from 90% last year. Gerstner said he's still long cloud company Snowflake, which remains his hedge fund's largest holding. He said he bought into pandemic winners Zoom Video and Peloton after they pulled back from Covid highs. Orlando Bravo owns bitcoin and is very bullish: 'Institutions are just beginning to go there' Orlando Bravo, co-founder and managing partner of private equity firm Thoma Bravo, says he's an investor in bitcoin and believes the cryptocurrency will surge in value over the years with more institutional adoption. His private equity firm recently participated in a Series B fundraise for cryptocurrency exchange FTX Trading, which is valued at $18 billion. "For me, it's pretty simple. More people are going to use in the future than today, and it's going to be more established. Institutions are just beginning to go there, and once that happens, I think it will increase significantly over the years. I'm very bullish," Bravo said.
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Rabu, 06 Oktober 2021
The 'Ted Lasso' ethos of investing | Best of Delivering Alpha conference | Palihapitiya on SPACs
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