BOSTON--(BUSINESS WIRE)--Breckinridge Capital Advisors, an independently owned asset management firm specializing in investment grade fixed income portfolios, announced today findings from a joint study with Greenwich Associates, which revealed that investment grade fixed income is the number one asset class for environmental, social and governance (ESG) use among U.S. institutional investors. Among the 80 midsized institutions interviewed for the study, investment grade fixed income accounted for 81% of those who currently use ESG compared to other asset allocations, topping even domestic equities at 73%, followed by non-domestic equities at 69%.
The study on institutional investors’ views and investment processes for investment grade fixed income and ESG integration found that one-third of institutions from the study (34%) were currently using ESG in their portfolios at the time of the survey. Of the rest, 70% said they were either actively considering ESG adoption or might do so in the future, while only 30% claimed to have no interest in adding ESG to their portfolios.
Findings revealed that investment grade assets represented by far the biggest component of institutional fixed income portfolios, making up 72% of fixed income assets for institutions and almost a quarter of total assets under management.
ESG Adoption Driven by Desire for Performance
Nearly half (48%) of respondents utilizing ESG adopted these strategies to align portfolios with clients’ values or those of the firm, or as a means of having a positive impact on the environment or society. However, more than one in five institutions (22%) noted their adoption of ESG was purely an investment-based decision, while 26% of respondents said their choice was driven by a combination of value and investment-based factors. Of those who use ESG or have considered ESG, enhancing returns and reducing risk ranked as the top two most important objectives for institutional investors, with 72% and 70% of respondents identifying those factors as “important” or “very important,” compared to just 59% of respondents who identified ESG’s positive impact on society and the environment as the most important consideration for adoption.
“Institutions believe that adding ESG criteria to an investment grade portfolio can enhance resiliency and possibly performance,” explained Andrew McCollum, Head of Investment Management at Greenwich Associates. “In addition, investment grade portfolios represent a logical and relatively seamless starting point for the integration of ESG into their broader organizations.”
Institutional Investors Focused on Protecting Capital and Mitigating Risk
Spurred by challenging market conditions, the study also found institutions are repositioning their fixed income portfolios to ensure they meet top objectives, including capital preservation, diversification, income generation, liquidity and risk management. The study indicated that institutional investors are largely sticking to long-term investment goals, and their reactions to market conditions fell into two broad repositioning strategies, namely adding risk to obtain needed yield, and reducing allocations where investors are no longer getting adequately rewarded for risk.
Further reinforcing the added importance to mitigating risk, the top criteria evaluated by institutions when selecting an external investment grade fixed income manager was their approach to risk management. The study also revealed institutions generally seek managers with a track record of outperforming during “risk-off environments,” rather than those who outperform in more normal conditions.
“Since 2011, we’ve been systematically integrating ESG into our research and building proprietary frameworks to support the unique objectives of our clients, including those in the institutional space,” said Peter Coffin, President, Breckinridge Capital Advisors. “We understand that investment grade fixed income and ESG are a perfect pairing, as it enables us to evaluate risks in an asset class, which has a distinctive asymmetric risk profile. We’re encouraged to see that institutional investors are in fact leveraging investment grade fixed income as a foundation for ESG integration, and we think the findings are quite telling about the future importance of ESG in the asset class, whether it’s for societal impact or performance objectives.”
Methodology
During November and December 2020, Breckinridge Capital Advisors commissioned Greenwich Associates to conduct a study designed to gain a better understanding of how midsize institutional investors are using ESG in their fixed-income portfolios, and how market volatility and current economic and social conditions are affecting their strategies with regard to both fixed income and ESG investments. We conducted 80 in-depth telephone interviews with decision-makers at institutions with assets under management (AUM) between $200 million and $1 billion. Corporate and public pension funds made up more than half of the research sample, which also included endowments, foundations and other types of institutional investors. One-third of study participants use ESG in their portfolios. Please refer to the full report on our website for additional information on the study and methodology.
About Breckinridge Capital Advisors
Breckinridge Capital Advisors is a Boston-based asset management firm specializing in investment-grade fixed income portfolios. With $44 billion in assets under management, as of December 31, 2020, Breckinridge serves a wide variety of clients ranging from private clients to institutions. Working through a network of investment consultants and advisors, Breckinridge offers sector-focused, multi-sector and sustainable bond strategies in customized separate accounts. For more information, please visit https://www.breckinridge.com/.
