The London-based Environmental asset manager has bucked a trend of industry outflows, tripling its assets under management over the course of the year.
The firm, founded in 2009, on an idea, with no product and no assets and just four employees has grown to a team of thirty dedicated specialists headquartered in London with expansion underway in North America. Sophisticated institutions from Australia, North America, Europe, and the UK have allocated capital to Osmosis as the firm seeks to target better risk-adjusted returns while reducing the environmental impact of their equity portfolios through the reduction in ownership of Carbon Water and Waste relative to both custom and mainstream benchmarks. The firm now manages 12 global and regional style-based long-only strategies and two market-neutral hedge funds.
The firm attributes its significant growth in assets to its proprietary research approach, a deep understanding of integrating environmental data into portfolio construction, the management of the risk being bought into portfolios to achieve clients’ environmental targets, and the maturing fund and strategy track records. The firm’s flagship Fund was awarded Environmental Fund of the year in 2021 and Boutique Manager of the Year in 2022*, further testament to the efficacy of its investment process.
Osmosis employs a quantitative approach that, through a dedicated in-house research function, analyses corporate carbon, water and waste data going back to 2005. The firm’s models have demonstrated that those companies that on a sector-relative basis better manage their resources relative to the economic value they create, are likely to outperform their peers in the long term. The research program has been further backed up by independent academic research.
The firm is considered by some within the ESG industry as contrarian due to its sole focus on the E of ESG. Osmosis believes that investment managers have a role to play to hold companies accountable for their actions across all ESG metrics; however, as evidenced during last year’s market downturn, unintended portfolio outcomes (many driven by over reliance on external ESG data vendors), can leave investors exposed to significant underperformance. Osmosis applies high-level screens across its portfolios to align with the UN Global compact principles for social and governance safeguarding, and all their portfolios are ex-tobacco. Given the lack of consensus among investors on what constitutes a “good company” the firm allows clients to articulate their own social and governance policies through the provision of customised exclusion lists. Osmosis then targets maximum exposure to resource-efficient companies subject to client-specific risk constraints.
The independent nature of Resource Efficiency as an investment signal has allowed the firm to build investment strategies within risk-controlled frameworks accounting for common country, industry, and factor biases. Its flagship Core Equity Strategy which is approaching its sixth year, has attracted over $7 billion into a pooled UCITS vehicle (OMWSBAU) and a suite of customised segregated accounts, from some of the world’s largest institutional asset owners as they seek to mitigate long-term environmental risks while balancing fiduciary duty. The Fund closed 2022 ahead of the benchmark for the fifth consecutive year and underscores the firm’s core philosophy that targeting better risk-adjusted returns and measurable environmental impact need not be mutually exclusive. Since its inception (May 2017) the Fund has annualised 0.93% (net)** of outperformance and recorded an information ratio of 1.09 while delivering significantly less ownership of Carbon (55%), Water (61%) and Waste (70%) versus the MSCI World.
Governments, regulators, and society as a whole are applying pressure on investors to address and mitigate the environmental risks in their portfolios. The climate clock is ticking. Combined with an increasing cost of capital, inflationary pressures and the inevitable squeezing of corporate profit margins, Osmosis with its proprietary approach to identifying resource efficient companies is well positioned to continue to accelerate growth. The firm continues to work closely with investors to help them navigate the complex decisions and implementation challenges they face to address their environmental and fiduciary responsibilities.
Recent additions to the Osmosis client roster include Dutch State Pension Fund PGB, Danish Pension Fund PKA, and the East Sussex Pension Fund in the UK. Osmosis remains majority owned by employees and is backed by the Oxford University Endowment Fund and Capricorn Investment Group’s Sustainable Investment Fund.
Ben Dear, CEO and Founder said:
Tripling AUMA over 2022 is a significant achievement for the firm. When we launched in 2009 we had high ambitions, but recognised that bringing a new idea, driven by a new data set, under a new brand would be met with some caution by the market. On numerous occasions we were informed that with no brand, no track record and no assets we would have no chance. We accepted that we would be judged by the outcomes of our investment strategies but reasoned that sustainable investing was a long term trend and that we would have to be committed to the long haul. Time was literally on our side. We have weathered extreme bouts of volatility driven by political insanity, a global pandemic and a war in Europe only to see the business emerge stronger. We are supported by a growing global cohort of sophisticated investors and are thankful to our ever-supportive shareholders and of course our committed team, who have believed in our mission from day one and continue to believe that we have much further to go. Personally, as our assets continue to grow I look forward to the company having a louder voice in the industry, to help drive the change that is required, both from our industry peers and the companies in whom we invest, and to raise awareness of the economic opportunities and challenges associated with transitioning to a more sustainable world economy.
Dear believes that the growing demand for products that reduce the environmental ownership of water and waste in addition to carbon will continue to work to its advantage in 2023. De-carbonisation is essential he says, but he believes that separating the climate from the environment lacks foresight and exposes portfolios to additional externality risks that can be better managed by incorporating a more comprehensive approach.
Osmosis launched in 2009 and is majority-owned by management and employees. The company currently manages over $9bn in sustainable assets across 12 investment strategies and is headquartered in London. The company believes that targeting better risk-adjusted returns and delivering significant environmental impacts do not need to be mutually exclusive endeavours. Through their unique Model of Resource Efficiency, the company has demonstrated that sustainability metrics, if quantifiable and objective in nature, can be applied to mainstream equity portfolios to generate alpha.
The Osmosis team of quantitative environmental analysts and portfolio managers is singularly focused on delivering three levels of impact. Better risk-adjusted returns, measurable environmental reductions, and an active engagement programme to promote better corporate environmental disclosure.
Government Pension Funds, State Pension Funds, Insurance Companies, Foundations, Endowments, Family Offices and Banks are amongst their client roster spanning North and South America, Australia, Mainland Europe, the Nordics, and the UK.
*The Environmental Finance Sustainable Investment Awards are free to applicants and open to all organisations globally. These awards were given in June 2021 and June 2022 and relate to the annual period May 20-May 21 and May 21-22
This document is issued by Osmosis (Holdings) Limited, a London-based investment management group. Osmosis Investment Management UK Ltd (“OIM UK”) is an affiliate of Osmosis Investment Management US LLC (“OIM US”). Osmosis Investment Management AUM includes discretionary assets under management of OIM US and OIM UK and assets invested in model programs provided by OIM US and OIM UK.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. The Osmosis Resource Efficient Core Equity Fund is not available for U.S. Investors. A Client’s account will be managed by Osmosis based on the strategy, but the actual composition and performance of the account may differ from the Fund due to differences in the timing and prices of trades, and the identity and weightings of securities holdings.
Net Performance. Net returns are net of fees and in USD unless indicated otherwise. Net returns are net of fees, costs and dividend withholding tax. Different fees may apply to a client’s account and a client’s returns may be further reduced by the advisory fee and other expenses incurred in the management of its account. Please see the specific performance disclosure under each table for additional details.
**Returns represent the actual returns for the Osmosis Resource Efficient Core Equity Fund, Class A. Net returns are calculated by subtracting the following expenses: actual transaction costs incurred, investment management fees of 0.10%, accruals for professional, administration and custodian fees (TER is 0.21%) and dividend withholding tax. Different fees apply to each share class and a client’s returns will be reduced by the advisory fee and other expenses incurred in the management of its account. Please see the attached performance calculation disclosure language. Past performance is not an indication of future performance.
Benchmarks. The historical index performance results for all benchmark indexes do not reflect the deduction of transaction, custodial, or management fees, the incurrence of which would have the effect of decreasing indicated historical performance results. Indexes are unmanaged and are not available for direct investment. The historical performance results for all indices are provided exclusively for comparison purposes only and may or may not be an appropriate measure to provide general comparative information to assist an individual client or prospective client in determining whether Osmosis performance meets, or continues to meet, his/her investment objective(s). The referenced benchmarks may or may not be appropriate benchmarks against which an observer should compare our returns.
The MSCI World Index captures large and midcap representation across 23 Developed Markets countries. With 1,645 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.