Investment Product and Service Launches

Conning Adds Climate Risk Reporting and Scenario Service

Conning has launched a new Climate Risk Reporting and Scenario Service, equipping institutional investors with the tools and analytics needed to assess portfolio risk under a range of climate change stresses.

The new modeling service responds to the increasing interest Conning has seen by insurers and pensions on the topic of environmental, social and governance (ESG) investing globally and the evolving frameworks for climate-related risk management.

“While the need for companies to assess climate risk is clear, there has been little in the way of a well-defined methodology for taking climate risk modeling beyond simple deterministic stress testing until now,” says Matthew Lightwood, global product manager of Conning’s GEMS Economic Scenario Generator software. “Our new Climate Risk Reporting and Scenario Service bridges this gap, combining robust stochastic economic modeling and climate change scenarios to provide insurers and pension plans with greater insights and richer narratives around their exposure to these risks.”

The service produces a Climate Risk Report, powered by Conning’s GEMS Economic Scenario Generator software. As an additional benefit, users of the service have access to the underlying scenario sets for use in their asset and liability modeling systems. In addition, Conning’s climate stress scenarios enable users to explore different pathways in terms of when and how transition and physical climate impacts may occur in the future.

“Climate change poses material risks for investment portfolios and the global economy as a whole, yet we have found that many institutional investors have struggled to measure these risks, mainly because of a lack of a reliable and standardized methodology,” says Woody Bradford, Conning’s CEO and chair of the board. “We are very proud that Conning is taking a leadership role in the industry by helping institutional investors evaluate climate change-related investment risks.”  

Morningstar Integrates ESG Factors

Morningstar Inc. has begun formally integrating environmental, social, and governance (ESG) factors into its analysis of stocks, funds and asset managers.

Morningstar equity research analysts will employ a globally consistent framework to capture ESG risk across more than 1,500 stocks. Analysts will identify valuation-relevant risks for each company using Sustainalytics’ ESG Risk Ratings, which measure a company’s exposure to material ESG risks, then evaluate the probability those risks materialize and the associated valuation impact. Results from this research will inform Morningstar’s assessment of a stock’s intrinsic value and the margin of safety required before assigning a Morningstar Rating for stocks between five stars and one star. Morningstar acquired Sustainalytics, a globally recognized leader in ESG ratings and research, in July.  

Morningstar manager research analysts will analyze the extent to which strategies and asset managers are incorporating ESG factors as part of its new Morningstar ESG Commitment Level evaluation. In conducting the strategy evaluation, the analysts will assess the analytics and personnel committed to each strategy and the extent to which the strategy incorporates those resources into the investment process. To perform the evaluation of asset managers, analysts will consider how clearly the firm has articulated its ESG philosophy and policies, and the degree to which it has driven those policies through its culture and investment processes. The ESG Commitment Level evaluation of strategies and asset managers will follow a four-point scale of Leader, Advanced, Basic and Low.    

Morningstar equity research analysts will use Sustainalytics research to capture ESG risk using a consistent process across industries, and in a manner that aligns with Morningstar’s long-term oriented and fundamentals-focused investment philosophy through two principal channels: the Morningstar Economic Moat Rating and the Uncertainty Rating. These ratings inform Morningstar’s assessment of intrinsic value and required margin of safety, respectively, and, ultimately, are rolled into the Morningstar Rating for stocks.

Additionally, Morningstar will rename the Stewardship Rating to Morningstar Capital Allocation Rating and refine the framework to isolate and evaluate management performance across three key dimensions: balance sheet health, investment efficacy and shareholder distributions. Analysts have identified these three factors as being important in measuring management’s impact on total shareholder returns.

“Integrating ESG directly into the marrow of our research methodology helps us to widen the aperture of the traditional financial analysis and more precisely capture ESG risks that can exert a profound influence on long-term competitive dynamics and the sustainability of a company’s earnings,” says Dan Rohr, head of equity research for Morningstar. 

Analysts will use Sustainalytics’ ESG Risk Ratings as the basis for identifying valuation-relevant risks. The ESG Risk Ratings measure a company’s exposure to industry-specific material ESG risks and how well a company is managing those risks. This approach to measuring ESG risk combines the concepts of management and exposure to arrive at an assessment of ESG risk—the ESG Risk Rating—which is comparable across all industries.

Morningstar will begin to roll out the equity research rating enhancements on December 9 and apply them to Morningstar’s global equity research coverage universe of more than 1,500 companies. The incorporation of ESG factors will update on a rolling basis through 2021. 

The new methodology for Morningstar’s equity research is available here. Further details on how ESG information will be integrated into each component is available here and more specifically for the Capital Allocation Rating here. 

T. Rowe Price Establishes Separate Investment Management Group

T. Rowe Price Group Inc. has announced that it will establish T. Rowe Price Investment Management Inc. (TRPIM), as a separate U.S.-based Securities and Exchange Commission (SEC)-registered investment adviser (RIA). TRPIM will have its own investment platform and veteran leadership, with more than 100 associates, including at least 85 investment professionals.

The firm intends to move the US Capital Appreciation, US Mid-Cap Growth Equity, US Small-Cap Core Equity, US Small-Cap Value Equity, US Smaller Companies Equity and US High Yield Bond Strategies into TRPIM. There are no planned portfolio manager changes associated with this transition and no change is expected in the day-to-day management of client assets. Pending all approvals, the transition of these strategies from T. Rowe Price Associates Inc. (TRPA) to TRPIM is expected to take place in the second quarter of 2022. As of September 30, the six strategies represented $167 billion in assets under management (AUM).  

There will be no impact to the structure or approach of the firm’s target-date portfolios or other multi-asset products.

To support the build-out of the research platforms, the firm has been on an accelerated pace of analyst hiring for the past two years and has been integrating these investors into their respective teams. While the majority of hiring has taken place, the firm plans additional hires over the next year. Average portfolio manager and analyst tenure for TRPIM and TRPA is expected to be similar.

Stephon Jackson, currently associate head of U.S. equity and a 13-year veteran of T. Rowe Price’s Equity Division, will become head of TRPIM and will join the T. Rowe Price Group Management Committee as of January 1. The directors of research for TRPIM will be Steven Krichbaum and Thomas Watson, both of whom joined the firm in 2007 and are currently directors of equity research, North America. Tammy Wiggs, who also joined the firm in 2007 and is currently an equity trader, will be head of equity trading for TRPIM. Ric Weible, who has been with the firm for 18 years and is currently director of operations for the U.S. Equity Division, will become director of operations and business management for TRPIM.

The portfolio managers moving to TRPIM include Brian Berghuis (US Mid-Cap Growth Equity Strategy) and David Giroux (US Capital Appreciation Strategy). Giroux will also serve as the chief investment officer (CIO) for TRPIM. Other portfolio managers include Frank Alonso (US Small-Cap Core Equity Strategy), Kevin Loome (US High Yield Bond Strategy), Curt Organt (US Smaller Companies Equity Strategy) and David Wagner (US Small-Cap Value Equity Strategy).

The firm does not expect the transition to be deemed a change of control or management of TRPA, nor does the firm expect any changes to fees or services provided to the funds and client accounts.