Interview – Esmée Fairbairn Foundation


We do not mind complex strategies. We have the operational resources to deal with them. The illiquid portion of the portfolio makes us look a lot more like a US foundation than a UK charity, while we do not have much in property. The portfolio’s turnover is also pretty low. There are plenty of managers that have been in the portfolio for more than five years, some longer than 10 years. That makes us slightly different from the crowd.


Are you, therefore, looking to replicate the US foundation model? Yes. We work with an investment adviser – Cambridge Associates – which has a network of analysts around the world who help us find funds. They have a history of working alongside endowments who are able to manage complex portfolios and allocations, particularly to illiquid holdings.


That said, we do not want to have an overly complex portfolio. So it is a con- stant challenge to make sure we have the exposure in the right places.


What is the thinking behind wanting to take advantage of the additional returns from complex or illiquid strategies? We do, as I say, have a bias towards ven- ture capital, which is high risk. This is investing in start-ups. We are essentially interested in backing innovation. Regard- less of what public markets do, good busi- nesses get created at all points across the cycle. We are looking for exposure to innovation, entrepreneurs and, ultimately, job creation. We are hoping to back good businesses at an early stage and watch them grow. This approach has driven our returns over time.


Which companies have you backed? We started a private portfolio more than 10 years ago, and companies such as Fitbit and Peloton have gone from being small start-ups, through their growth stage to the public markets. We usually exit at this


16 | portfolio institutional | November 2022 | Issue 118


point and we recycle the money back into the next level of innovation.


Where is the next level of innovation? The green transition offers a great deal of opportunity. There is a lot to be pessimis- tic about if you look at the environmental statistics. But economies are changing at a fast pace and history teaches us that dis- ruption and innovation, although they are typically bad for incumbents, generally throw up big opportunities for the start- ups and disruptors.


Your portfolio returned 31.1% in 2021, beating the 11.8% target. What is behind this success?


Private equity was the main driver. This is an area where we have spent a number of years developing relationships. This has included some travel to the west coast of the US and to China. Our advisers have an analyst network around the world and we work with them to find the best funds.


Has there been a time when they were not as successful?


There was a period coming out of the financial crisis when markets moved up quite strongly and our portfolio didn’t keep up. We were low risk, cautious and with high levels of cash. We were con- cerned


that the recovery wasn’t


sustainable. After the underperformance, we took a step back. We asked what our strengths


We are guardians of the endow- ment for future generations.


are and where they lie. The conclusion was that big balanced funds, with a mix- ture of equities, bonds and cash, had been problematic and we wanted exposure to funds with a more specialised focus. Funds with a smaller number of hold- ings – 20 or 30 stocks focused on alpha generation. So each manager had a specific target within the portfolio. We also took a view to always be fully invested, which has not always been the case.


How does your approach to ESG align with your mission as a charity? There are various strands to it. We are, for example, supporters of organisations like ShareAction which work to improve the financial system.


Then within our investment portfolio, we joined the United Nations Principles for Responsible Investment (UNPRI) in about 2013 – and that has prompted many conversations. But engagement is key here. We work with Cambridge Associates to engage managers with questions like: do they have net-zero policies? What is their approach to particular stocks that have certain environmental, social and govern- mental challenges?


And we invest in positive climate solu- tions and funds with good approaches to diversity, equity and inclusion. It has been about making steady improvements year- on-year on all these issues.


How are you going to meet your commit- ment to make your portfolio net zero by 2040? We are starting from a low base. The nature of our portfolio and the companies we like means we don’t have much expo- sure to businesses that have high emis- sions. But our first task has been contact- ing our managers and explaining our approach and asking them if they have a net-zero strategy.


And we are also looking at how we trans- late all this to impact in the real world.


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