AMWatch

New sustainability quant manager makes Stockholm key in global conquest: "ESG leadership coming from the Nordic region is really phenomenal"

US-based V-Square Quantitative Management using ESG data as fuel for its investment engine will run its global distribution from Stockholm. Here, the company's President and co-founder Mamadou-Abou Sarr helped a Swedish pension fund develop a low carbon equity strategy in 2013. Sarr tells AMWatch what the firm wants to achieve, and why he is comfortable with the big bill that comes along when buying tons of ESG data.

V-Square Quantitative Management President and co-founder Mamadou-Abou Sarr and newly-appointed head of distribution Erik Norland. | Photo: PR / V-Square Quantitative Management

When Chicago-based V-Square Quantitative Management (V-Square) announced that its distribution would operate out of Stockholm with the hiring of Erik Norland as head of distribution, it was a commitment suggesting that the Nordic region will play a big role in the newly-established asset manager's development.

Founded in 2020, V-Square's investment engine uses sustainability big data to develop investment solutions within the growing field of passive products with intended ESG customization. These are delivered in rules-based factor investing strategies. In general, customized index products with personalized sustainability filters are very much in style in the institutional community.

V-Square's first live strategies, which are implemented via separately managed accounts, are within listed equities, but requests within fixed income have started to pick up. The starting point for any conversation with a potential client is a value based questionnaire, which aims to find out what the prospects care about.

"As a long-term practitioner in the ESG space, the hardest question for a prospect to answer is their expectations from a performance standpoint and ESG outcomes, because how they define success can be unique," V-Square President and co-founder Mamadou-Abou Sarr explains in an interview with AMWatch, and continues:

"Some investors focus on outperformance versus a benchmark, and others focus on specific ESG outcomes. It depends on what you want to achieve."

Screendump from V-Square's site showing its value based questionnaire. | Photo: https://www.vsqm.com/value-based-questionnaire.php
Screendump from V-Square's site showing its value based questionnaire. | Photo: https://www.vsqm.com/value-based-questionnaire.php

What tends to matter most for investors?

"The most pressing matters for Nordic prospects are fees, low carbon exposure, following global norms, and thematic investing, based on what I have seen from the questionnaire responses," Sarr says.

According to a V-Square firm brochure, fees for separately managed accounts may be up to 1.25 percent per annum depending on complexity. Sarr, however, states this figure represents the upper limit given the brochure is a regulatory paper.

You mentioned fees are important to potential investors. What do you consider a competitive price for a beta strategy with an ESG overlay?

"An important component of the pricing is actually the cost of data. The fee pressure we see our clients face doesn't always reconcile with the cost of vital ESG data. We do consider our fees to be competitive and I am acutely aware of the pricing in the Nordic region along with the dynamics for passive and enhanced products as I was responsible for pricing ESG strategies in the Nordic region at my prior firm, Northern Trust Asset Management," he says.

Unfazed by data costs

As a quantitative manager, data is fuel to the investment engine. Across the investment landscape, asset owners and managers alike face increasing difficulty in choosing among companies that provide ESG data – and how to compare, analyze and interpret the data once they've got it.

According to Sarr, V-Square uses several big data providers in its models.

"Because I led the charge of vetting data providers at Northern Trust, I have built a strong relationship with many of them," Sarr explains. 

"We have developed an open architecture platform with access to data from MSCI, Bloomberg, ISS and more data brokers," he says.

UK asset manager Schroders' annual institutional investor survey from 2021 showed that costs associated with investing sustainably is a growing concern for global investors, as reported by AMWatch. In fact, more than a third of the 750 investors who participated in the survey highlighted costs as a main challenge.

Building a new team at V-Square with Erik Norland as the most recent hiring, the obvious question is whether acquiring data from so many providers is perhaps too expensive as a solution:

"On the quant side, the major trend in the ESG space is data, data and more data. Even though ESG data is an important cost, it's the best way for us, as a specialized manager, to develop our portfolio and help asset owners understand the ESG risks and opportunities," Sarr says.

First mandates

V-Square started with two strategies: a low carbon and a US large cap ESG best-in-class at its inception, and Sarr says that more strategies are on the way.

"As we scale our capabilities, we launched an EAFE ESG Leaders strategy with more strategies in the pipeline as we support investors to meet their ESG goals," he says and continues:

"We are getting traction with mandates from intermediary platforms, others are from foundations and there are more clients along the way. The feedback from the market is that even though ESG has grown so much in popularity, a lot of clients are still increasingly asking for customized solutions."

According to the firm brochure, V-Square started its journey with USD 3,340,000 in regulatory assets, and while Sarr says that assets have grown substantially since inception, the updated AUM figure won't be disclosed until later this year.

If you have been in the market for decades, and you decide to do ESG somehow, you still have to take into consideration everything you have done before from a product standpoint. Say you build a Lego tower, and you try to put a green Lego brick in the middle - if you do that you have to break down the tower that you have built. But for us, we started with the green brick and built it up

V-Square President and co-founder Mamadou-Abou Sarr

Stockholm trip this month

Like Sarr, the company's new head of distribution has also worked at Northern Trust Asset Management, where he served as the firm's head of Nordic region. Norland and Sarr often traveled together to meet investors, and they expect to reunite in Stockholm in August, this time as two of V-Square leaders.

"We look forward to leading innovation and the integration of ESG data in the Nordics and becoming a valued partner to institutional investors in the region," Sarr says, and continues:

"With our head of distribution based in Stockholm we have a strong presence. We are a global firm and Erik brings talent to the Nordic region that has global leadership within ESG. His expertise brings a local view to innovation for our investors."

As a new manager, can you be competitive in the region?

"We are as competitive as the local managers. My sense was that we needed to be local – we wanted to be active in the Nordic region though the strength of local presence in the region. Erik's global role, strengthens our platform because the ESG leadership coming from the Nordic region is really phenomenal," Sarr says.

If you have been in the market for decades, and you decide to do ESG somehow, you still have to take into consideration everything you have done before from a product standpoint. Say you build a Lego tower, and you try to put a green Lego brick in the middle - if you do that you have to break down the tower that you have built. But for us, we started with the green brick and built it up

V-Square President and co-founder Mamadou-Abou Sarr

Decarbonizing AP4's equity portfolio

In 2013, years before sustainable investing started got its current status as an asset manager's license to operate, Sarr helped Swedish buffer fund AP4 set up The Northern Trust Emerging Markets Custom Low Carbon Dioxide Equity Index Fund.

This index excluded companies with high greenhouse gas emissions and companies with extensive reserves of fossil fuels.

Then CEO of AP4 Mats Andersson's ambition in seeding the fund was to start pressuring companies to lower their carbon dioxide emissions, he said in a press statement. In July 2021, Andersson was awarded the French Knighthood degree Légion d'Honnerur for his part in pioneering the decarbonization of pension funds.

"Being responsible for products across the Nordic region which were often first to market, I had the pleasure of working with AP4 when they were launching their first low-carbon endeavor to start decarbonizing their equity portfolio," Sarr says.

Unlike today, at that time, the supply of green index strategies was limited.

In the wake of the EU's Sustainable Finance Disclosure Regulation (SFDR), which went into effect on 10 March, many asset managers have updated their index strategies to replicate greener benchmarks to adhere to investor demand, because many distributors and fund buyers across Europe have said they would only consider funds in Article 8 and 9 categories going forward, according to a recent report by Morningstar.

This trend includes Handelsbanken Fonder and Danske Bank AM, where several index strategies now track the popular MSCI Paris-Aligned benchmarks. The banks have since classified them as Article 9 funds under the SFDR because the intention is to achieve sustainable outcomes, such as a minimum 7 percent annual reduction to the funds' carbon footprints.

House of Legos

Sarr prefers to put the firm in the spotlight, as even though it was founded in 2020, the firm's key personnel have decades of experience in the intersection between capital markets and sustainable investing.

Sarr was responsible for developing sustainable investment strategies at Northern Trust Asset Management between 2011 and 2020. Prior to this, he worked at HBSC Global Asset Management, Morgan Stanley Investment Management, Amundi and Citi.

"My vision has always been to hone my skills at a large organization before ultimately starting my own investment firm. When I turned 40 two years ago, I went on holiday with my wife and told her: "this is it, I'm doing it." For me it wasn't about the leadership that comes with it. Instead, it was the desire to assemble a team of partners that I trust such as Erik, who I have worked with for nine years," Sarr says.

He highlights that large organizations often have a legacy, meaning their ESG approach has to fit with what they already have on their shelves.

"If you have been in the market for decades, and you decide to do ESG somehow, you still have to take into consideration everything you have done before from a product standpoint. Say you build a Lego tower, and you try to put a green Lego brick in the middle - if you do that you have to break down the tower that you have built. But for us, we started with the green brick and built it up." 

V-Square is part-owned by private equity investor Valor. Does this imply that you have a minimum level of growth rates you need to achieve soon?

"It's a long-term commitment. The chairman of Valor is on the board of V-Square. They are obviously eager to see us grow and support the vision of V-Square's unique approach to sustainability with a long-term view and seeks to deliver a new vector of change in the way we generate investment returns for investors," Sarr says.

New quant manager poaches Northern Trust AM Nordic head

New quants blast onto scene with stellar start 

Trillion dollar manager bets on next-gen passive and factor strategies to standout in crowded ESG market  

More from AMWatch

After two years of preparation: Robur launches dark green prestige fund

Sweden's largest fund manager is launching a climate impact fund with Swedbank's insurance unit as anchor investor. "We've had some great interest from larger investors and are in close contact with several potential investors that have expressed an interest," the new fund's portfolio manager tells AMWatch.

Further reading

Related articles

Trial banner

Latest news

Jobs

Latest news from FinansWatch (dk)

Latest news from EnergyWatch

Latest news from ShippingWatch