Hedge Funds Review European Single Manager Awards 2016
The Church of England and hedge funds are rarely linked in the same sentence. But Roy Kuo, team head of alternative strategies at the Church Commissioners for England, has made that link and is strengthening it.
Hired in May 2013, Kuo was tasked with building on the alternative asset investment strategy developed and refined over 15 years by the Church Commissioners for England. He was hired, as he was able to use his experience in private equity, hedge funds, infrastructure, currencies, equities and fixed income to help in the management of an investment fund worth £7 billion ($10.3 billion), the third-largest UK charitable giver and fourteenth largest globally.
The Church Commissioners, which supports the work and mission of the Church of England, has an investment policy aimed at diversification across a broad range of asset classes consistent with "ethical guidelines".
Over the last decade, alternatives within the portfolio have grown considerably and now make up nearly 20% of total asset allocations. The Church Commissioners are also keen to be "at the forefront of responsible investment practice". This is something that is also close to Kuo's heart.
According to the latest annual report, the Church Commissioners "has always attached great importance to investing in a way that is consistent with Christian values". Together with the Church of England Pensions Board and CBF Church of England Funds, it sponsors the church's ethical investment advisory group to ensure that it receives "expert, independent advice on ethical investment matters".
The Commissioners are active through the UN Principles for Responsible Investment and are also members of the institutional investors group on climate change and UK sustainable investment and finance.
Speaking at the European Single Manager Awards 2016 dinner, Kuo emphasised the Commissioners' " fairly stringent ethical, social and governance policies". He went on to explain to the policy as it related to hedge funds.
"When we started to invest in hedge funds, we encountered a lot of new issues that we had not encountered before. We saw that many of the hedge fund strategies could be complementary to our existing investments but that the strategies themselves could be complex to manage to our ethical framework," he said.
Confronting the popular press view that hedge fund managers "have devilled horns", he revealed that many managers have been "very receptive" to the Church Commissioners' guidelines.
However, he acknowledged it has been an uphill struggle to get managers to "actually do something about it. A lot of this has to do with the fact that most managers are relatively small firms, so they don't often have the financial or operational capacity to build the infrastructure required," he said.
"We're conscious of this and have tried to be innovative in how we achieve these goals. But we need managers to step up as well. In this way I think we are aligned," he added.
Kuo listed things like better corporate government as a way in which managers could become more engaged that is beneficial to the funds as well as investors.
He wants to see ethical and social responsibility become "part of the evolving landscape that managers need to adapt to [in order to] succeed in the industry going forward".
"If we can work together on these issues, I think we can help the industry evolve with the times and make a greater contribution to society," he concluded.
Kuo is certainly qualified for his liaison link between the Commissioners and the hedge fund industry. Before joining the Church Commissioners he worked for just over two years with Dexion Capital, focusing on alternative investments, sell-side research in listed alternative vehicles, hedge funds, private equity and infrastructure.
Prior to that he was a consultant on hedge funds and private equity with Aberdeen Asset Management.
His direct hedge fund experience was gained at Bramdean Asset Management where he was involved in the Alternative Assets Fund, as well as funds of hedge funds and private equity funds of funds for over three years.
He also worked at hedge fund Hornbeam Asset Management on equities research and portfolio management, specifically equity long/short.
The Church Commissioners' investment fund has achieved an average return of 9.7% a year over the past 30 years. The fund has grown from £2.4 billion at the start of 1995 to its current size.
In addition to hedge funds, the fund has significant investments in timber land and infrastructure, a relatively new asset class for the fund.
Kuo's focus is mainly in growing the endowment's allocations in the hedge fund and credit sectors.