In emerging markets, long-term stewardship is the most important quality for successful investments, according to Sujaya Desai, an analyst at the sustainable funds group at Stewart Investors.
In investing, stewardship is a form of shareholder activism, most often defined as engagement with public companies to promote good corporate governance. But it can also refer to the governance practices of a company’s leaders and management teams.
According to Desai, the volatility and uncertainty that have long been associated with investing in the emerging markets can be partially mitigated by investing in “high-quality family owners who act as stewards of businesses over generations.” These multi-generational family owners “place weight on institutional memories, patience, and the ability to take decisions that might bring short-term pain but bear fruit over decades,” she wrote in a blog post.
“We’re looking to find people that we can trust with our clients’ capital,” Lorna Logan, a portfolio manager with the sustainable funds group at Stewart Investors, told Institutional Investor. “Often we find ourselves attracted to family-led companies — people who really care about the business for the long term and can steward that company through the generations rather than through the next quarter or the next two or three years.”
Desai’s piece included examples of businesses in emerging markets that act as strong stewards of institutional clients’ capital. For instance, Marico, a hair oil company based in India and run by the Mariwala family, has been around since the 1990s and is a strong example of the benefits of long-termism. When the company was in its early stages, a competitor offered to acquire it, but the founder declined, thinking about the long-term benefits of continuing growth. Today, Marico has expanded into Bangladesh and is now a market leader. Stewart Investors owns a portion of Marico in its worldwide and emerging markets funds, according to Logan.
“I think that’s just a nice example of a company with strong stewardship and long-term time frames and how that really benefits investment performance,” she said.
Stewardship has come more into focus in recent years, as investors globally have increasingly prioritized environment, social, and governance issues. Earlier this month, Accenture Asset Management reported the results of a survey in which 93 percent of asset managers said they were looking to upgrade their stewardship approach over the next five years.
“Stewardship is important in emerging markets, but it’s everywhere,” Logan said. “Wherever we invest, we’re looking for companies that are stewarded responsibly for the long term.”
But there are still challenges to widespread adoption of stewardship strategies. On a global scale, data standardization, research and analysis, corporate interaction, and access to data are fundamental challenges for shareholder engagement. On a regional scale, Logan, who is based in Edinburgh, said barriers like travel and language stand in the way of completely robust stewardship in portfolio companies located in the emerging markets.
“There are many families in the emerging markets that we wouldn’t invest in,” Logan said. “Probably nine out of 10 families we wouldn’t get behind, but we need to find the small few that we do trust.”