Friday, January 26, 2018

Friday Feature PM Q&A interview: CAM ESG Fund Franklin Khusman フランクリン・クスマン CAM ESGファンドのファンド・マネージャー

Today, we interview Franklin Khusman, the Portfolio Manager of the Environmental, Social & Governance (ESG) fund at Capital Asset Management K.K. (CAM), a firm focused on equity investments in financial services. In 2017, the CAM group launched a new ESG Fund offering, and it had tremendous success outperforming its peers.(Pictured: Nofil Iqbal left, Franklin Khusman right)

1. When did you start your ESG equity fund? What is the focus of Capital Asset Management, and how have you raised assets under management?

The CAM ESG Japan Fund was created on 27 January 2017, with zero seed money. Right upon inception high net worth individuals recognized its concept & potential, and the fund got immediate funding of US$2Million. In less than 365 days the fund has grown over 300% and with current AUM of over US$7Million+ and growing.

Capital Asset Management K.K. (CAM) business invests on behalf of our clients with expertise predominantly in both Frontier Asian and Emerging Markets. Unlike any other investment firm in Japan, we created and pioneered the first CAM ESG Japan Fund (Equity Mutual Fund). We invest on behalf of our various clients who entrust their savings to us. We recognize the change in landscape where non-financial information is becoming more strategically important than the traditional financial ratios.

CAM (Capital Asset Management K.K.) was founded in Tokyo in 2004, and is currently headed by Eiichiro Tabuchi. We have around 20 unique funds, from a Yield Oriented Health Care REIT Fund to a Frontier Markets Country Fund. As of December 2017 CAM had approximately US$380Million in total AUM (Assets Under Management).

2. Where do you see the opportunity for your firm to grow? Is  there any key ESG advantage you have today in Japan or Asia?

Given that CAM is a boutique asset manager and our funds are purely unique. It would be fair to say that we are almost an exclusive player for both frontier markets and our ESG fund in Japan.

To elaborate; our ESG fund has an annualized return of 28% with a sharpe ratio of 3.1. Further we have created a customized ESG Alpha Strategy Fund that incorporates various hedging strategies, based on investors investment objectives, risk appetite and target return profile. This fund can be fully hedged and has the ability to deliver a reasonable rate of return within an acceptable scope of risk to our client’s advantage.  

In the summer of 2017, Japan’s Government Pension Investment Fund (GPIF) the largest investor in the world, with AUM of US$1.5 Trillion, selected 3 ESG indices as their benchmark. They allocated US$10Billion for preliminary ESG investment. This act of responsible investing will be followed by the respective public sector pension funds, corporate pension funds, and general public the private investors.

3. How do you create such impressive returns? What is your universe and how to do you determine your portfolio holdings?​
The return on our ESG funds is driven by what we call “CAM Sustainable Investment Model” which basically is an integration of combining ESG Score and company’s financial data.

To define; we take the total universe of 3,700 listed companies of Japan. Selecting the top 1,000 companies with ESG criteria, we then do a quantitative analysis and a deep drill for the top 100 ESG companies, eliminating the companies that have the highest potential as "bad actors" or being involved in major scandals in Japan.

The ESG fund has a total of 100 companies (40 from Nikkei 225, and the rest from TOPIX). We do not disclose exact criteria for our profitable filtering system as this remains our in-house intellectual property and trade secret.​

4​. What attracted you to this opportunity to pursue research and then run an ESG fund of corporates in Japan?

I started as Portfolio Risk Consultant in MSCI BARRA, guiding the investment professional in Japan on importance of BETA and diversification through Multiple Factors Risk Model. Moving to Thomson Reuters, I explored the world of ALPHA through work on quantitative analysis, Smart Beta Indices, and set up a Lipper Fund awards for” Japan’s Defined Contribution Category” which has focus for Risk/Return for long term investment.

As for setting up the ESG Fund, my research with ESG content conclude that investing in ESG excellent companies help REDUCE RISK. At the same time the better Governance within those firms lead them towards better performances which convert into HIGHER RETURN.
Peer analysis shows that my approach provides better result, which the management of the firm believes that CAM should introduce the product to the public, and allow them to gain the benefit of ESG investment for long run investment. Further it could be said that the non-financial factors have become more important in corporate analysis; as this is what I know to be the main ESG factors.

5​. Will the corporate governance issues of Japanese enterprises impact the CAM ESG Japan Fund?

The biggest surprise with our first year results came from the impacts of more Japanese corporate scandals than expected. We only factored in 1 or 2 major scandals per year, however in 2017, we experienced 9 in Japan; Toshiba, Nissan Motor, Subaru, Mitsubishi Material, Kobe Steel and the 4 largest construction companies. Let’s hope that we continue to perform at a similar during scandals in 2018. The CAM ESG Japan Fund will not be impacted as we search for alpha within our portfolio via deep drill down quantitative research. We have strong insights from our ESG analysts.

6. Are there project partners or investors that you are searching for at this time for your ESG fund product offered in Japan?

CAM ESG Japan Fund is a regular investment trust developed under supervision of Japan’s FSA. We believe it will be good if the ESG Investment can be made available to wider audience including investors outside Japan.

We are currently looking for partners who can help introduce the variants of CAM ESG Japan Fund within their local jurisdictions.

7. Where do you see your firm growing the most in the next 2-3 years? Will this continue the current focus or change into another new direction?

CAM ESG Japan Fund has 5 years of simulation performance result, and 1 year of actual result (28% returns). Since we have been able to confirm that the actual performance is replicating the result from simulation (between 2012-2016), we are convinced that the current ESG investment process is very solid and it can be used as base for Absolute Return product (ESG Alpha Strategy). We believe that our ESG Alpha derivative products will also become our focus in the next 2-3 years.

If any Japanese or global investors are interested in knowing more track record details about our ESG fund performance, they can contact Nofil Iqbal in English or Japanese for all distribution and marketing enquiries.​ 英語または日本語の電子メールは受け入れられます He can be contacted on LinkedIn or by email at Full profiles of Capital Asset Management K.K., Franklin Khusman, and Nofil Iqbal, are all available on LinkedIn

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