Sustainable investment pioneer Matthew Kiernan has teamed up with Paul Clements-Hunt, the former head of the UN Environment Programme’s Finance Initiative, to help raise money from wealthy families in the ‘BRIC’ countries.

Kiernan founded asset management firm Inflection Point Capital Management (IPCM) in 2010 after selling Innovest Strategic Value Advisers – the investment research firm he established in 1994 that specialised in environmental, social and governance issues – to RiskMetrics for $16 million.

IPCM is now opening its sustainable equities fund to outside investment after outperforming its benchmark by 500 basis points in its first year – “a trial run on our own dime”, Kiernan said.

The firm will initially target wealthy individuals, family offices and foundations in Brazil, Russia, India and China. Kiernan explained that without a three-year track record, institutional investors are unlikely to commit to the fund, but family offices are more open to newer, more innovative approaches.

Meanwhile, the new generation of ultra-wealthy BRIC entrepreneurs are concerned about environmental and sustainability issues, he said, and generally do not share the prejudices about sustainable investing that western investors hold.

“We know that high net-worth individuals are four or five times more predisposed to the sustainability message,” Kiernan said, based on his previous experience of launching an emerging markets sustainability fund in 2004.

The fund invests in large companies worldwide and has a “modest tilt” toward assets in emerging markets, he noted.

“Emerging markets are where the sustainability battle will be won or lost. That’s where the biggest challenges and opportunities are,” he said. Moreover, there is a greater difference in performance between sustainable and unsustainable businesses in emerging markets, compared with those in developed countries.

Clements-Hunt joins IPCM as a global advisor, responsible as much for the strategic direction of the fund as raising money. “He has made more of a contribution to this field than almost anyone I can think of,” Kiernan said.

The firm could raise $1 billion into the fund if it is successful in getting its first investors on board – or raise nothing.

“It could be a flop,” Kiernan said. “Getting the first few investors we expect to be quite challenging, but the nature of the business is that once those first few are in, the rest will follow. And I’m optimistic that it will be a tsunami.”

Meanwhile, IPCM has ended its partnership with investment management firm Legg Mason, which provided a distribution platform and back office functions, and Phoenix Global Advisers, by mutual consent. Kiernan said he is currently talking to other providers of fund infrastructure and asset owners.

By Christopher Cundy
Environmental Finance