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Investing trends: why more people are looking into ESG opportunities

Marc Brookman, Schroders North America CEO, joins Yahoo Finance Live to talk about the importance of ESG investing and how inflation could impact investors' portfolios.

Video Transcript

MYLES UDLAND: Of course, certainly been an eventful year in markets. And really coming-- 2020 did-- at the end of a huge decade for the asset management business, now looking at a very different future from where that business had been not too long ago. Marc Brookman joins us now-- he's the CEO over at Schroders-- to talk about all things private asset management. And Marc, I guess, I would kind of start the conversation this way. Where you guys sit within the asset management business, what are the main things that your clients are coming to you with? What are the requests they have for how you guys are looking to deploy and manage their capital?

MARC BROOKMAN: Well, first, thanks for having me, Julie, Myles, and Brian. I appreciate the opportunity. You know, client demand in the last year has really changed a lot of things. Clearly, in the alternative space, in the private assets, private equity, private credit, there are lots of opportunities and lots of client demand, especially from the larger institutions. But obviously, also the big thing that we hear about and talk about every day is around ESG, sustainable investing, impact investing, what we want to call it. And I think those are areas that we're absolutely seeing a lot of activity as we speak right now.

JULIE HYMAN: You know, I'm always curious about conversation versus action when it comes to this stuff, right? And not just with ESG, but the things that we tend to talk about a lot on this show because they are buzzing, right? Whether it's cryptocurrencies or meme stocks or some of the electric vehicle stocks, for example. I'm curious when it comes to your clients, even though maybe they're asking about that stuff, are they still then putting their money in sort of more vanilla investments, for example?

MARC BROOKMAN: Well, I think it really depends on the client. We see the larger endowments and foundations are very sophisticated. You know, a lot of the universities, same sort of thing. But institutional, clearly, clients, corporate clients absolutely are investing, not so much in the cryptocurrencies, but very much in private equity, private credit. And things like ESG, which is a buzzword right now, we've been talking about this for years and years.

But we really haven't seen momentum. We really haven't seen assets fly into or flow into capabilities. You are starting to see that now and very significant flows, as state by state, a lot of the public funds are really starting to look at these things. And it is becoming more important. So it's also really important to separate marketing and really just talking about these things and actually doing the investing. But the momentum is clearly there. But there were a lot of pretenders in the business. And that's important to think through, as people are looking at different asset managers.

BRIAN SOZZI: Marc, how concerned are clients right now when you talk to them about inflation. And if they are concerned, are they starting to make changes to their portfolios, based on a potential inflation outbreak later this year?

MARC BROOKMAN: Everyone seems to be watching it. It's absolutely a discussion point with every single client right now. And a lot of them are positioning their portfolios in anticipation of this. So we are starting to see shifts in fixed income allocations away from vehicles that could potentially suffer in a rising rate environment.

Things-- we're seeing movement to things like securitized credit that is going to do better in a rising rate environment and still generate some yield. And then we're seeing movement to commodities and other things that we haven't seen in 12 years. And I think we've had some scares and lots of conversations over the years about a rising rate environment. But we really haven't seen it. It really feels, for the first time in many, many years, that our clients and everyone are really thinking about, this is going to happen this time.

JULIE HYMAN: Very interesting there, Marc. I want to go back to ESG for a second also. Because I think we struggle sometimes with the ESG label, right? And whether-- I mean, it seems like every company now considers itself ESG. And they can't all be, if we're really applying the correct metrics. So how do you make sure, especially when a lot of companies don't even disclose the various things that one would consider in order to try and classify it as ESG?

MARC BROOKMAN: Julie, that's the right question to ask. And that's what I think our clients are asking us every day. Is it marketing? Or is it real? And explain what real means to me. You know, with us, I'll use our own organization, Schroder's, as an example. We have built our own proprietary tools to look at everything going on within an organization and within a company. And ESG is incredibly complex in what it really, really stands for. I think when you're a passive investor, you're using third party data typically. And it's just broad brushed. And you're not really taking active roles in the companies.

When I look at how we think about what ESG means-- and to me, ESG, three to five years from now, is not even going to be a term that's used. It will be sustainability. And it will ultimately really be about measuring the impact that you're making every single day. And so, what we think about, when you look at a company, it's not just about the industry you're in. So there are certain industries in theory that if you're into ESG, you can't invest in, be it alcohol, tobacco, firearms are the old school things.

But some of those companies are incredibly sustainable companies by their nature, not just about what they manufacture or make or produce. But it's about how they treat their employees. Are they paying them fair wages? Are they giving them real benefits? We're looking at things that happened during COVID and how did you treat your employees. What's going to happen after COVID? And how are you going to treat your employees? There's so many things to look at, things about the taxes that you do or don't pay. It's about the charities that you're contributing to and what's important to you.

So there is so much into this. And only a handful of companies are doing it. And we have a distinct advantage because we're a British-based firm. We've been in this space for well over 20 years. So this isn't a new fad for us. We've had a lot of time to develop our own tools, our own capabilities, our own unique ways. And I think that is why we are a leader in this space.

MYLES UDLAND: Yeah, trying to avoid the old, oh, it's a big tech growth index, what we call an ESG. So we'll charge a few more basis points. All right, Marc Brookman is the CEO of Schroders, North America. Marc, appreciate you jumping on this morning. Thanks for spending some time with us. We'll talk soon.

MARC BROOKMAN: Great, thanks for having me.