1 00:00:03,460 --> 00:00:06,470 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,870 --> 00:00:10,039 Sean Aylmer: I'm always interested in speaking to investors and fund managers 3 00:00:10,240 --> 00:00:13,640 Sean Aylmer: about the principles that underpin their decisions beyond just the 4 00:00:13,640 --> 00:00:17,410 Sean Aylmer: need to deliver a strong return. A the consideration of ESG, 5 00:00:17,410 --> 00:00:21,610 Sean Aylmer: that's environmental, social, governance factors, has certainly become a bigger 6 00:00:21,610 --> 00:00:25,500 Sean Aylmer: influence in recent years. Federation Asset Management is a fund 7 00:00:25,500 --> 00:00:28,750 Sean Aylmer: that invests in businesses and assets that fit a social 8 00:00:28,750 --> 00:00:32,350 Sean Aylmer: and economic need. It's headed up by Cameron Brownjohn who's 9 00:00:32,350 --> 00:00:36,099 Sean Aylmer: had decades of experience with Macquarie Group, UBS and Merrill Lynch. 10 00:00:36,470 --> 00:00:39,159 Sean Aylmer: He's now the CEO of Federation Asset Management and my 11 00:00:39,159 --> 00:00:41,300 Sean Aylmer: guest this morning. Cameron, welcome to Fear and Greed. 12 00:00:41,620 --> 00:00:42,530 Cameron Brownjohn: Thank you for having me. 13 00:00:42,880 --> 00:00:46,150 Sean Aylmer: So why focus on ESG? And is it more on 14 00:00:46,150 --> 00:00:48,040 Sean Aylmer: the E or is it a bit of everything? 15 00:00:48,520 --> 00:00:51,820 Cameron Brownjohn: It's probably a bit of everything, to be honest. Maybe 16 00:00:52,500 --> 00:00:56,840 Cameron Brownjohn: to guide you, Federation invests in businesses and assets that 17 00:00:56,840 --> 00:01:00,610 Cameron Brownjohn: meet a social and economic need. And really, the way 18 00:01:00,610 --> 00:01:04,080 Cameron Brownjohn: that we think about ESG is from a perspective of, 19 00:01:04,080 --> 00:01:07,540 Cameron Brownjohn: we think it's the best way to protect an investor's 20 00:01:07,540 --> 00:01:11,780 Cameron Brownjohn: money and to grow that capital. And we think that 21 00:01:12,040 --> 00:01:14,890 Cameron Brownjohn: in fact, if you invest in an ESG savvy way, 22 00:01:15,330 --> 00:01:18,150 Cameron Brownjohn: and if you make a range of positive and negative 23 00:01:18,150 --> 00:01:22,810 Cameron Brownjohn: undertakings as to how you will screen for ESG related 24 00:01:22,810 --> 00:01:26,709 Cameron Brownjohn: factors, that you are more likely to protect investors capital 25 00:01:27,030 --> 00:01:29,020 Cameron Brownjohn: and that you are more likely to make a return 26 00:01:29,020 --> 00:01:32,320 Cameron Brownjohn: on that capital as opposed to lose money because you 27 00:01:32,620 --> 00:01:34,910 Cameron Brownjohn: are trying to focus on ESG factors. 28 00:01:35,310 --> 00:01:38,140 Sean Aylmer: So why? Is it because it's a global mega trend? 29 00:01:38,300 --> 00:01:40,840 Sean Aylmer: Is it because that's where investor money is going? Why? 30 00:01:41,240 --> 00:01:45,319 Cameron Brownjohn: I guess maybe I'll give you an example, which is 31 00:01:45,319 --> 00:01:49,290 Cameron Brownjohn: notable in the press these days being the thermal coal 32 00:01:49,290 --> 00:01:52,940 Cameron Brownjohn: industry, which is not an industry that we do invest 33 00:01:52,940 --> 00:01:57,070 Cameron Brownjohn: in, in Federation. And really using that as an example 34 00:01:57,070 --> 00:02:01,620 Cameron Brownjohn: as a negative selection bias from an ESG perspective, we 35 00:02:01,620 --> 00:02:05,740 Cameron Brownjohn: would be fearful that the pool of investors that would 36 00:02:05,740 --> 00:02:08,740 Cameron Brownjohn: be likely to buy a thermal coal asset in the 37 00:02:08,740 --> 00:02:11,919 Cameron Brownjohn: future will be less than the pool of investors that 38 00:02:11,919 --> 00:02:15,100 Cameron Brownjohn: would be available to buy that asset five years ago, 39 00:02:15,250 --> 00:02:19,480 Cameron Brownjohn: 10 years ago, a generation ago. And if you, I 40 00:02:19,480 --> 00:02:23,500 Cameron Brownjohn: guess, take the crude example of there is less buyers 41 00:02:23,919 --> 00:02:27,600 Cameron Brownjohn: than sellers, you should be expecting the price of that 42 00:02:27,600 --> 00:02:31,419 Cameron Brownjohn: asset, all other things being equal, going down. Then, if 43 00:02:31,419 --> 00:02:34,130 Cameron Brownjohn: you take the example of what will you do with 44 00:02:34,480 --> 00:02:37,510 Cameron Brownjohn: thermal coal, you can do a number of things. But 45 00:02:37,510 --> 00:02:39,500 Cameron Brownjohn: one of which is you can burn it to make 46 00:02:39,500 --> 00:02:46,090 Cameron Brownjohn: electricity with the pivot to obviously green power and renewable 47 00:02:46,090 --> 00:02:49,660 Cameron Brownjohn: energy generation, which is something that my team knows a 48 00:02:49,660 --> 00:02:52,880 Cameron Brownjohn: little bit about, you would be there for expecting the 49 00:02:52,880 --> 00:02:56,390 Cameron Brownjohn: price of coal, all other thing being equal, going down 50 00:02:56,660 --> 00:02:59,579 Cameron Brownjohn: over time. So, it would be our fear that if 51 00:02:59,580 --> 00:03:02,480 Cameron Brownjohn: we were to be investing into that sort of space, 52 00:03:02,800 --> 00:03:07,889 Cameron Brownjohn: that there are easier ways to protect investors capital and 53 00:03:07,889 --> 00:03:10,250 Cameron Brownjohn: try and find boats that float on a rising tide 54 00:03:10,250 --> 00:03:13,100 Cameron Brownjohn: as opposed to a tide that is going out. So 55 00:03:13,360 --> 00:03:16,669 Cameron Brownjohn: I guess flipping that logic around, we like to invest 56 00:03:16,669 --> 00:03:21,389 Cameron Brownjohn: in renewable energy. We like to invest in new technologies 57 00:03:21,389 --> 00:03:25,050 Cameron Brownjohn: that should benefit from social change, I guess, on the 58 00:03:25,050 --> 00:03:26,010 Cameron Brownjohn: flip side of that logic. 59 00:03:26,370 --> 00:03:30,209 Sean Aylmer: Okay. So that's fine. But when you see energy prices 60 00:03:30,210 --> 00:03:31,950 Sean Aylmer: going through the roof, as they are at the moment, 61 00:03:31,950 --> 00:03:36,020 Sean Aylmer: gas, oil, coal, all at multi- year highs, how hard 62 00:03:36,020 --> 00:03:38,990 Sean Aylmer: is it holding the line in terms of staying away 63 00:03:38,990 --> 00:03:40,230 Sean Aylmer: from some of those products? 64 00:03:40,600 --> 00:03:43,690 Cameron Brownjohn: I don't think it's difficult. You can invest in an ESG 65 00:03:43,690 --> 00:03:48,040 Cameron Brownjohn: savvy way and still benefit from those trends that you 66 00:03:48,040 --> 00:03:53,510 Cameron Brownjohn: speak of. So for example, Federation builds wind farms. We 67 00:03:53,510 --> 00:03:56,940 Cameron Brownjohn: bought Australia's leading wind farm developer in Windlab. It's the 68 00:03:58,020 --> 00:04:02,380 Cameron Brownjohn: former CSIRO wind sites division. They use wind farms to 69 00:04:02,380 --> 00:04:06,590 Cameron Brownjohn: produce electricity, not coal- fired power stations to produce electricity. 70 00:04:07,090 --> 00:04:11,570 Cameron Brownjohn: So they can be benefiting from these energy price benefits 71 00:04:11,570 --> 00:04:15,540 Cameron Brownjohn: that you speak of but in an ESG savvy way. So it's, 72 00:04:15,540 --> 00:04:19,170 Cameron Brownjohn: I guess it's just a way of intelligently playing the 73 00:04:19,170 --> 00:04:23,359 Cameron Brownjohn: mega trends and positioning yourself to benefit from them. 74 00:04:23,960 --> 00:04:27,210 Sean Aylmer: Okay. As an investor then, how do you think about, 75 00:04:27,220 --> 00:04:29,520 Sean Aylmer: I mean, Shell is an example, Total in France is 76 00:04:29,640 --> 00:04:32,870 Sean Aylmer: an example, BHP is an example, where they're trying... They 77 00:04:32,870 --> 00:04:36,010 Sean Aylmer: have a climate change strategy and an ESG strategy to 78 00:04:36,010 --> 00:04:38,440 Sean Aylmer: go from brown to clean at some point in the 79 00:04:38,440 --> 00:04:41,460 Sean Aylmer: future. Is it okay to invest in those sorts of 80 00:04:41,460 --> 00:04:44,029 Sean Aylmer: companies? I get you don't want to invest in a 81 00:04:44,029 --> 00:04:46,089 Sean Aylmer: company who has a strategy to pull coal out of 82 00:04:46,089 --> 00:04:48,300 Sean Aylmer: the ground for the next 50 years. But what about 83 00:04:48,370 --> 00:04:50,630 Sean Aylmer: those who are going through a transition? Because we still 84 00:04:50,630 --> 00:04:53,500 Sean Aylmer: need energy as we get to net zero in 2050. 85 00:04:53,980 --> 00:05:00,340 Cameron Brownjohn: The Australian landscape is not dissimilar. Where certainly the federal 86 00:05:00,800 --> 00:05:06,170 Cameron Brownjohn: liberal government believes that there will be a need to transition Australia's 87 00:05:06,170 --> 00:05:12,089 Cameron Brownjohn: baseload power from predominantly brown and black coal- fired power 88 00:05:12,089 --> 00:05:16,909 Cameron Brownjohn: stations through to a longer term, more sustainable set of power. 89 00:05:17,490 --> 00:05:23,770 Cameron Brownjohn: Rooftop solar, grid- scale solar, wind power, pumped hydro and 90 00:05:23,770 --> 00:05:27,150 Cameron Brownjohn: batteries, and I'm sure other technologies in the fullness of 91 00:05:27,150 --> 00:05:32,040 Cameron Brownjohn: time, things like hydrogen. And to get from go to 92 00:05:32,040 --> 00:05:37,060 Cameron Brownjohn: whoa, there may be a need to use transitionary fuels. 93 00:05:37,060 --> 00:05:40,350 Cameron Brownjohn: People have talked of gas- fired power stations and the 94 00:05:40,350 --> 00:05:44,550 Cameron Brownjohn: like. This will be a process if done in an 95 00:05:44,550 --> 00:05:48,000 Cameron Brownjohn: Orthodox way, the way other countries have done it will 96 00:05:48,000 --> 00:05:51,290 Cameron Brownjohn: take a generation or half a generation to play out. 97 00:05:51,950 --> 00:05:56,440 Cameron Brownjohn: So yes, we would be open to considering how to 98 00:05:56,440 --> 00:06:01,839 Cameron Brownjohn: participate in that energy transition. And we think that participating 99 00:06:01,839 --> 00:06:05,239 Cameron Brownjohn: in the energy transition with the ultimate goal of getting 100 00:06:05,240 --> 00:06:09,460 Cameron Brownjohn: to the most sustainable, and by the way, cheapest cost 101 00:06:09,460 --> 00:06:12,420 Cameron Brownjohn: of power is a sensible investing strategy. 102 00:06:12,640 --> 00:06:14,890 Sean Aylmer: You mentioned Windlab a moment ago. You also have a 103 00:06:14,890 --> 00:06:17,669 Sean Aylmer: stake in Sendle, which certainly isn't a generator such as 104 00:06:17,670 --> 00:06:22,460 Sean Aylmer: Windlab is. It's Australia's first 100% carbon neutral parcel delivery 105 00:06:22,460 --> 00:06:24,700 Sean Aylmer: service. What's the appeal of that business? 106 00:06:25,240 --> 00:06:29,390 Cameron Brownjohn: Sendle is an e- commerce logistics business. It moves things 107 00:06:29,390 --> 00:06:34,070 Cameron Brownjohn: from A to B without human interaction, using computers to 108 00:06:34,070 --> 00:06:37,990 Cameron Brownjohn: find the marginal capacity in the logistics network at its 109 00:06:37,990 --> 00:06:42,220 Cameron Brownjohn: marginal cost. And what that means is it's cheap and 110 00:06:42,220 --> 00:06:47,360 Cameron Brownjohn: it's fast and it's passing those savings through to consumers. 111 00:06:47,920 --> 00:06:52,320 Cameron Brownjohn: Therefore, it's growing really quickly. Federation invested in that business 112 00:06:52,320 --> 00:06:57,470 Cameron Brownjohn: in December 2018. And every month since we've invested, volumes 113 00:06:57,470 --> 00:07:01,320 Cameron Brownjohn: and revenue have been up more than 50% on the 114 00:07:01,320 --> 00:07:05,000 Cameron Brownjohn: prior comparable period and in many months, more than a hundred percent. And 115 00:07:05,000 --> 00:07:09,100 Cameron Brownjohn: even in some months through COVID, more than 200%. It's 116 00:07:09,100 --> 00:07:13,620 Cameron Brownjohn: a real Australian success story. And when Federation invested into 117 00:07:13,620 --> 00:07:17,510 Cameron Brownjohn: that business, the company was looking for expansion capital to 118 00:07:17,790 --> 00:07:21,680 Cameron Brownjohn: grow its horizons into the United States, with the benefit 119 00:07:21,680 --> 00:07:26,100 Cameron Brownjohn: of eBay and Shopify as two key customers. So, it's 120 00:07:26,100 --> 00:07:30,460 Cameron Brownjohn: a wonderful, fast growing business. We're aligned to the principles 121 00:07:30,470 --> 00:07:34,570 Cameron Brownjohn: of the company on many bases, but including their approach 122 00:07:34,570 --> 00:07:37,810 Cameron Brownjohn: to the environment. They are a B Corp, which is 123 00:07:37,810 --> 00:07:40,860 Cameron Brownjohn: a very high standard of an ESG friendly company in 124 00:07:40,860 --> 00:07:44,600 Cameron Brownjohn: the United States. And we're excited about what they're doing 125 00:07:45,050 --> 00:07:47,450 Cameron Brownjohn: both in a business sense and what they're doing for 126 00:07:47,450 --> 00:07:48,320 Cameron Brownjohn: the planet as well. 127 00:07:48,570 --> 00:07:50,650 Sean Aylmer: Stay with me Cameron. We'll be back in a minute. 128 00:07:55,710 --> 00:07:59,730 Sean Aylmer: I'm speaking to Cameron Brownjohn, CEO of Federation Asset Management. 129 00:08:00,080 --> 00:08:02,380 Sean Aylmer: Okay. So let's move off the E part of ESG. 130 00:08:02,480 --> 00:08:05,870 Sean Aylmer: Another area of expertise for Federation Asset Management is social 131 00:08:05,990 --> 00:08:08,770 Sean Aylmer: real estate. And one of your funds focuses on housing 132 00:08:08,770 --> 00:08:11,840 Sean Aylmer: for people with a disability, which has the indirect support 133 00:08:11,840 --> 00:08:15,320 Sean Aylmer: of the government National Disability Insurance Scheme. Take me through 134 00:08:15,320 --> 00:08:16,679 Sean Aylmer: this one. How did this one come about? 135 00:08:17,090 --> 00:08:22,090 Cameron Brownjohn: That's called Synergis, that business. And we manage Synergis in 136 00:08:22,090 --> 00:08:26,110 Cameron Brownjohn: a joint venture with Social Ventures Australia, which is a 137 00:08:26,110 --> 00:08:30,030 Cameron Brownjohn: leading industry player, which basically does what it says on 138 00:08:30,030 --> 00:08:33,520 Cameron Brownjohn: the tin. You are right, that real estate investment trust 139 00:08:33,520 --> 00:08:37,250 Cameron Brownjohn: buys and builds homes for people living with disability. And 140 00:08:37,280 --> 00:08:40,989 Cameron Brownjohn: the rent is indirectly paid for by the Commonwealth government's 141 00:08:40,990 --> 00:08:45,970 Cameron Brownjohn: National Disability Insurance Scheme. We are pleased to be one 142 00:08:45,970 --> 00:08:50,300 Cameron Brownjohn: of the leading participants in that broad and growing industry. 143 00:08:50,500 --> 00:08:53,490 Cameron Brownjohn: And it's a large total addressable market in the needs 144 00:08:53,490 --> 00:08:58,920 Cameron Brownjohn: of 20,000 people or $ 10 billion worth of investment that 145 00:08:58,920 --> 00:09:01,710 Cameron Brownjohn: needs to go into that space. So it's a large and 146 00:09:01,710 --> 00:09:05,689 Cameron Brownjohn: growing space and we're excited to be doing the right 147 00:09:05,690 --> 00:09:09,950 Cameron Brownjohn: thing by the world, but expressed purely financially, which is 148 00:09:09,950 --> 00:09:12,229 Cameron Brownjohn: I think your question as to why a fund manager 149 00:09:12,230 --> 00:09:15,520 Cameron Brownjohn: would be doing those thing. Think of us doing the 150 00:09:15,520 --> 00:09:18,420 Cameron Brownjohn: right thing by the world, but at the same time 151 00:09:18,450 --> 00:09:23,020 Cameron Brownjohn: buying and building Australian residential real estate at a 7 152 00:09:23,059 --> 00:09:27,510 Cameron Brownjohn: to 8% cap rate. In the suburb that I live 153 00:09:27,650 --> 00:09:31,550 Cameron Brownjohn: in Sydney, maybe rental yields are 2%, so it's good business 154 00:09:31,550 --> 00:09:35,679 Cameron Brownjohn: to be doing this. And my income is 100% government 155 00:09:35,679 --> 00:09:41,000 Cameron Brownjohn: backed. So, I spoke earlier of not needing to choose 156 00:09:41,000 --> 00:09:44,830 Cameron Brownjohn: between making good financial decisions and doing the right thing 157 00:09:44,830 --> 00:09:48,260 Cameron Brownjohn: by the world. Synergis is a wonderful example of making 158 00:09:48,260 --> 00:09:52,390 Cameron Brownjohn: good financial decisions for our investors capital and also doing the 159 00:09:52,390 --> 00:09:54,270 Cameron Brownjohn: right thing by the world at the same time. 160 00:09:54,620 --> 00:09:58,540 Sean Aylmer: So there's no compromising on returns anymore when it comes 161 00:09:58,540 --> 00:09:59,230 Sean Aylmer: to ESG? 162 00:09:59,540 --> 00:10:00,449 Cameron Brownjohn: You don't need to, no. 163 00:10:01,020 --> 00:10:04,580 Sean Aylmer: Okay. When you're looking at an investment, how do you 164 00:10:04,580 --> 00:10:07,280 Sean Aylmer: put the ESG lens over it to see whether it's 165 00:10:07,280 --> 00:10:09,300 Sean Aylmer: going to... I'm sure, at the top of the funnel, there's 166 00:10:09,300 --> 00:10:12,460 Sean Aylmer: lots of opportunities for an organisation like yours, but you 167 00:10:12,470 --> 00:10:14,939 Sean Aylmer: put the ESG lens over it. How do you filter 168 00:10:14,940 --> 00:10:15,360 Sean Aylmer: through it? 169 00:10:16,150 --> 00:10:19,920 Cameron Brownjohn: There is many factors that the world is learning to 170 00:10:19,920 --> 00:10:24,839 Cameron Brownjohn: filter through from an ESG perspective. There's five broad buckets 171 00:10:25,200 --> 00:10:29,110 Cameron Brownjohn: that the Federation team looks through. And maybe to give 172 00:10:29,110 --> 00:10:31,710 Cameron Brownjohn: a couple of examples, one of those buckets is things 173 00:10:31,710 --> 00:10:34,859 Cameron Brownjohn: that drive revenue. Another one of those buckets is things 174 00:10:34,860 --> 00:10:38,530 Cameron Brownjohn: that drive cost. So on revenue, you might be focusing 175 00:10:38,530 --> 00:10:42,349 Cameron Brownjohn: on the stickiness of customers depending on the business model, 176 00:10:42,350 --> 00:10:46,870 Cameron Brownjohn: but using stickiness of customers as an example, do customers buy 177 00:10:46,870 --> 00:10:50,870 Cameron Brownjohn: from this company because of price or some other factor? 178 00:10:51,470 --> 00:10:55,660 Cameron Brownjohn: Is the cost base of the company sustainable? And we 179 00:10:55,660 --> 00:10:57,920 Cameron Brownjohn: don't ask that from a perspective of, are they doing 180 00:10:57,920 --> 00:11:00,960 Cameron Brownjohn: the right thing by the world, but do they, for example, 181 00:11:00,960 --> 00:11:05,160 Cameron Brownjohn: have a large polarity towards renewable energy? Not because it's 182 00:11:05,160 --> 00:11:07,820 Cameron Brownjohn: necessarily the right thing by the world, but because it 183 00:11:07,820 --> 00:11:12,500 Cameron Brownjohn: will become cheaper than competing technologies over time. And so 184 00:11:12,500 --> 00:11:15,290 Cameron Brownjohn: through these sorts of lenses, you get a feel for 185 00:11:15,290 --> 00:11:19,330 Cameron Brownjohn: what is the outlook of this business from the immediate 186 00:11:19,330 --> 00:11:20,699 Cameron Brownjohn: term into the longer term. 187 00:11:21,190 --> 00:11:24,300 Sean Aylmer: You're just making a normal investment. I mean, everything you've 188 00:11:24,300 --> 00:11:28,430 Sean Aylmer: said today, Cameron, is you are just being an investor, 189 00:11:28,850 --> 00:11:31,870 Sean Aylmer: looking at a set of products which has an ESG 190 00:11:31,870 --> 00:11:33,260 Sean Aylmer: lens. But at the end of the day, it's about 191 00:11:33,260 --> 00:11:35,339 Sean Aylmer: making a return and you're doing good as well. 192 00:11:35,520 --> 00:11:39,250 Cameron Brownjohn: We think it's the most sensible way to invest, is 193 00:11:39,250 --> 00:11:42,680 Cameron Brownjohn: to invest with your eyes open to ESG factors. 194 00:11:43,179 --> 00:11:44,910 Sean Aylmer: Cameron, thank you for talking to Fear and Greed. 195 00:11:45,520 --> 00:11:45,680 Cameron Brownjohn: Thank you very much. 196 00:11:46,440 --> 00:11:50,689 Sean Aylmer: That was Cameron Brownjohn. CEO of Federation Asset Management. This 197 00:11:50,690 --> 00:11:53,189 Sean Aylmer: is the Fear and Greed Daily Interview. Join me every morning 198 00:11:53,190 --> 00:11:55,350 Sean Aylmer: for the full Fear and Greed podcast with all the 199 00:11:55,350 --> 00:11:58,670 Sean Aylmer: business news you need to know. I'm Sean Aylmer. Enjoy 200 00:11:58,670 --> 00:11:58,839 Sean Aylmer: your day.