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Profile: MitonOptimal's portfolio boss on his 25 years of ethical investment

Profile: MitonOptimal's portfolio boss on his 25 years of ethical investment

Ethical investing is booming, but there is one man in wealth management, Paul Warner, who genuinely can claim to be a pioneer, having been involved in socially responsible investing (SRI) well before most others in the industry even knew what it was.

Some who claim to be early adopters of environmental, social and governance (ESG) investing, proudly trumpeting their track records going back 10-15 years, only jumped on the public bandwagon after the Kyoto Protocol of 2005.

However, an open-minded Warner, now head of portfolio management at MitonOptimal, set up an ethical portfolio back in 1994 at the request of an independent financial adviser (IFA) who had clients looking to avoid the typical sin stocks.

‘We only did stuff the IFAs asked us to do,’ Warner says. ‘They approached us, as a DFM (discretionary fund manager), and asked if we could run a portfolio that was ethical and avoided the tobacco companies, gambling, weapons, etc.’

This was with his firm Minerva Fund Managers, which Warner set up in 1991. He previously ran a model portfolio service (MPS) for an IFA, before stock market events changed people’s minds on putting their money into such vehicles, leading the IFA to jettison the business.

‘I was running an MPS service for an IFA back in the 1980s. In 1987 we had the [stock market] crash, then in 1990 we had Saddam Hussein’s invasion of Kuwait. Stocks were performing terribly, and it seemed like having a DFM service was detrimental to the business,’ he says.

‘When we set up Minerva, all their [the IFAs] DFM clients came with us, and it allowed me to do exactly what I wanted, which is to offer services through IFAs.’

Warner ran Minerva until 2017, when it was bought by MitonOptimal.

James Sullivan, managing director at MitonOptimal, says his firm was looking to acquire a company to develop its MPS business, and he adds that Warner was the ‘obvious conversation’.

‘We were very keen to grow the business. We wanted to develop our MPS business, in particular the SRI side, and Paul was the obvious conversation, because of his pedigree. It’s really helped balance the team again – both in terms of product and personality,’
Sullivan says.

MitonOptimal offers four SRI portfolios – defensive, balanced income, balanced growth and adventurous – and two ethical strategies, balanced growth and balanced income.

It currently has £30 million in client assets in these six, and total assets under management (AUM) of £210 million. The average client portfolio size for its ethical and SRI mandates is £150,000. 

MitonOptimal’s SRI balanced growth portfolio has returned 19.77% over three years, compared with the benchmark figure of 16.72%, while its ethical balanced growth portfolio has delivered a total return of 20.16% over three years, again compared with 16.72% for the benchmark.

For Warner, joining MitonOptimal was also a good fit. ‘The approach was James ringing me up and saying “fancy a chat?” I said “go on then”, and that was that.

‘It’s about working more with people who are like-minded. We like the people here, I guess that’s always important isn’t it? And we’ve always been bottom-up [at Minerva], we never had a proper top-down approach.’

The portfolios work by firstly creating a universe of funds that match the firm’s SRI criteria, and backed by regular fund manager meetings.

Then the funds are screened to highlight specific investment criteria, as well as the holdings’ inclination towards positive societal contributions.

After that, the funds are risk-rated using the process developed by Warner when he started Minerva Fund Managers in 1991, for consistency and volatility.

Warner says the key is to look for funds that have a track record of at least five years, and also to see what their maximum drawdown is like.

He says: ‘We need a fund that has been going for at least five years, and has to have consistency of performance, so we know that team is capable of going through different market cycles and conditions. 

‘We add maximum drawdown, which is more important from a client point of view than measuring risk and volatility.’

He picks out Charles Montanaro’s UK Income fund as one which has strong performance and suitable ESG criteria, as well as the WHEB Sustainability fund, run by lead fund manager Ted Franks.

On the latter, Warner says: ‘The people all come from Henderson and have a good track record. Their aim is to outperform the MSCI World Total Return index, and they have high exposure to the US, which is something we want in our portfolios.’

His main passion in wealth management comes from working with IFAs. He says: ‘They’re characters, a lot of them, and they all have different views. I enjoy the company with IFAs, I like spending time
with them.’

Time is also a reason why he does not deal directly with retail clients.

‘If I’m directly speaking to a client, that’s an hour of my time,’ he says. ‘I can deal with hundreds of clients at a time and spend only an hour with an IFA.

‘When you’re meeting clients directly, you get emotionally involved with the client and you don’t take decisions objectively.’

As a religious man, Warner has a commitment to being socially responsible that extends outside of the office. 

Formerly chairman of his local parish’s Christian Aid committee – he resigned last year because the vicar changed – Warner managed to raise £5,000 for a water project in Ethiopia, an amount that was matched by the European Union through a charitable scheme.

‘It completely changed a whole valley in Ethiopia,’ he says. ‘They created a well and funnelled water out for animal feeding, irrigation and also human consumption. Around 120,000 people benefited
in total.’

Although Warner may be a veteran of the ESG side of the industry, more by request than of his own accord originally, he has no doubt seen many changes in how people have wanted to invest their money over the years. So how has ESG changed since he started in 1994?

‘Back then it was really more about the ethical stance – people wishing to avoid tobacco, gambling, weapons, etc. It was really focused around negative criteria,’ Warner says. ‘One of the major things that occurred about five to six years ago was the move away from fossil fuels. People started looking more at waste disposal, water – particularly in developing countries. All these are positive criteria.’

He adds that the financial crisis in 2008 also changed the mindset of people looking to invest their money, with the public blaming the greed of banking executives and a lack of control at the top of the big banks for causing the crisis. 

‘I think things have changed since the crisis, people have become a lot more focused on the governance side,’ he says. ‘And to be honest, we possibly might not have had that, had the banking crisis not happened.’

Warner highlights Volkswagen and its emissions scandal as an example where fund managers have taken a lot more notice of governance, even if they do not have an ESG overlay.

The days are almost past, he says, whereby people still believe the age old cliché that you have to sacrifice morals and ethics in order to get a good return on your investments.

Neil Woodford did extremely well and tobacco was one of his main holdings, so I think it’s always in the back of people’s minds,’ Warner says. ‘And Peter Hargreaves had his “bad fund” and said that always outperformed. But that’s not the case today, and I think that mindset is slowly being changed.’

With a number of companies launching new ethical funds and portfolios as clients adopt a different mindset, what does the veteran make of all the new kids on the block?

‘From my point of view, it’s good in one way,’ he says. ‘That’s where things are going and people are trying to join that trend.

‘There’s more competition, but it also increases the awareness of the IFAs. I think it will build, but a lot of it depends on IFAs asking the question [about SRI investing] to their clients. It’s plausible that this will become the norm.’

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