Qatar makes the odd billion available for a nice bit of spin

The Qatar Sovereign Wealth Fund has apparently concluded it needs to win friends and influence people.  Like the UK’s Conservative political party once felt it needed to lose its “nasty” image, the leadership of the Qatar fund has decided it’s time to start doing to some warm and cuddly ethical investments.

This new strategy may have merit in its own right, but  does not seem to be stemming from a sudden Damscene conversion to doing good in the world. Instead the Qatar investors realise too many people around the world are starting to regard them as running a nasty, ruthless acquisition machine, gobbling up trophy assets all over the place.

Such an image poses a leadership dilemma. As an investment expert you’re paid to get financial results for your shareholders. However, who wants to go to bed knowing all sorts of perfectly respectable citizens are starting to hold you and your organisation in contempt, even to fear your very presence amongst them?

So the answer is to spend what to the rest of us is an impressively large sum of $1 billion on socially worthwhile schemes. After all, with $100bn assets, the odd billion spent on looking good will hardly transform that giant portfolio in the near  future.

The choice is therefore to start putting money into relatively high profile schemes with a social or environmental aim. As the Financial Times reported on an insider’s view “They are trying to recast their image a bit.” [1]

It’s debateable though whether a smidgen of ethical investing will really make the Qatar Sovereign Fund seem more likeable.  But its canny leaders have at least one part of the equation correct. Ethical investing can make perfectly sound commercial sense.

The first ethical investment fund in the UK was launched in 1984 by Friends Provident as a direct result of their Quaker roots. Since then dozens of funds from many of the UK’s leading fund management groups have been launched. These have shown ethical investing is no handicap to investment performance.

Several studies confirm ethical investments can actually boost the return on funds, over and above the equivalent non-ethical funds and against the appropriate indices.

For example, nearly one out of every eight dollars under professional management in the United States tracked by Thomson Reuters Nelson is involved in socially responsible investing. That is already 12.2% of the $25.2 trillion in total assets under management [2]

Some leading investors though remain firmly unconvinced and even sneer at the whole idea of using ethics as a basis for an investment strategy. They continue to argue the returns are historically poor.

Assuming the leaders of the Qatar Fund persist in their ethical investment strategy, apart from a financial return, why should they do it anyway?

First, there’s the Feel-Good Factor. Ethical investing certainly has a large emotional component. People who choose to follow an ethical investing strategy feel good both about themselves and how they are making a contribution to society.

Secondly, being counter intuitive in your investment strategy often pays off. Ethical investing may look crazy to many if not most other investment managers.

Not so says  Henderson Industries of the Future fund which seeks to make a profit from emerging social and environmental trends. These include cleaner energy, sustainable transport, and water management as well as healthcare and safety. Once these themes have been identified, the management team look for companies that can provide profitable solutions to the challenges involved.

Thirdly, what’s another billion in the bank? At some point, as Mr Gates has demonstrated, enough is enough. Maybe the Qatar fund leaders have realised it’s not just what you do that ultimately matters, but how you do it.

[1] Qatar Fund seeks to soften Image, by V Kortekaas and S Kerr, FT October 29 2013

[2] Forum for Sustainable and Responsible Investment (US SIF)

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