Robeco: The “Investment Engineers” creating wealth AND well-being

One of the world’s oldest asset management firms, Robeco was founded in the Netherlands almost a century ago

For an asset manager with a long history and established traditions, Robeco has a very modern mission: not only to produce above-market financial returns but also to help tackle global issues.

The firm started in 1929 in Rotterdam and focused initially on Dutch retail investors. Today its main clients are pension funds, governments and other institutions and it has €170 billion in assets under management; 16 international offices around the world, from Australia to Asia, the US and Europe; and approximately 1000 employees.

ORIX bought majority control of Robeco Group, including its asset management subsidiaries, such as Boston Partners and Harbor Capital Advisors in 2013 and acquired full ownership three years later. While ORIX established clear financial and governance parameters, it has left internal strategy and execution entirely in the hands of Robeco’s leadership. This has created a strong relationship, based on trust and transparency, says Robeco CEO Karin van Baardwijk. She is proud that Robeco can contribute to ORIX and to see that together with the subsidiaries, what was formally known as the Robeco Group has grown significantly since the acquisition, with AUM now around €330 billion.

Robeco’s mission is to create wealth as well as well-being. First, by generating returns on investment for its clients, allowing them to grow, create jobs and fund pension payments. At the same time, by choosing its investments carefully, the company can direct money at the problems of our time, such as climate change, biodiversity and social equality.

Behind this lies the research-based conviction that making businesses sustainable is a part of making them future-proof. “Research drives everything we do”, notes Ms van Baardwijk: “That’s why we call ourselves the ‘Investment Engineers’”.

Karin van Baardwijk became Robeco CEO in January 2022

Pioneering sustainability…

In terms of sustainability, Robeco was a pioneer, starting with its first ESG-aligned fund in 1990 and launching a sustainable water strategy more than 20 years ago. Since 2005, the firm has been focused on integrating environmental, social and governance factors into its investment process and today it is acknowledged by fund ratings agency Morningstar as one of eight worldwide leaders in sustainable investing.

That should help it defend its market position at a time when sustainability has become mainstream and claims of greenwashing are rising. To the extent that these trigger higher standards and stricter rules – such as Europe’s Sustainable Finance Disclosure Regulation (SFDR) - Robeco should benefit as this will allow clients to measure it accurately against the competition.

Meanwhile, the firm is starting to focus on impact investing, where managers try to influence and improve the companies they invest in, rather than just voting with their feet by selling out. Robeco has put together a team that engages full-time with listed companies to discuss their sustainable strategies and it also participates in shareholder meetings and uses its votes strategically at annual meetings.

The main challenge with impact investing is how to properly measure its effects, which is why the firm recently opened up some of its intellectual property, related to how it measures its progress towards the UN’s Sustainable Development Goals, to a number of clients and academics. The goal is to collect feedback, learn from each other and further improve the quality of data.

…and quantitative investing

A second characteristic of Robeco’s investment style, also based on a strong research tradition and a long track record, are its quantitative strategies. Quant investing exploits market inefficiencies created by human cognitive biases to uncover neutral signals that will produce superior returns. In essence, it takes the emotion out of investing.

Robeco is building on its already strong Quant brand with next-generation capabilities that will analyze economic intuition, alternative data and machine-learning algorithms. Such sources can provide fresh insights: for example, assessing whether better employee morale leads to long-term outperformance cannot be done by parsing traditional financial statements; but a website such as Glassdoor may be able to answer this question.

Robeco’s first next-gen fund, Quantum Equities, was launched in November 2022 and uses machine-learning models, among other tools, to uncover nonlinear relationships that affect equity performance. Does this herald the replacement of asset managers by artificial intelligence? No. But it seems likely that we will see more human managers make use of algorithms in order to outperform.

Active versus passive

This question leads neatly to one of the big debates in investing: whether active managers can consistently outperform the market and thus justify the higher fees they charge? The huge flows of money into passive vehicles like indexed ETFs suggest that many clients, and the public at large, are skeptical.

Ms van Baardwijk, however, has no doubts: “Of course we can make a difference with active management, but it’s not easy.” Focusing on secular themes like digitization, natural resource scarcity or the rising middle classes in emerging markets can all throw up attractive opportunities. Careful stock selection can then be used to take advantage of these trends. And active management, through active share ownership, can also push companies to improve – and make sure capital is allocated to ‘good’ companies. Passive investing maintains the status quo.

The proof lies in the fact that Robeco equities at the moment, in aggregate, has outperformed the market by 0.5% gross of fees, – a considerable margin for the industry. And after a long period when momentum and growth investing was carrying all before it, the return of volatility gives active managers a chance to continue to outperform.

The real winners in the active/passive debate, though, are the Quant funds. Factor-based or Enhanced Indexing strategies, which add academic insights to the traditional passive approach, have outperformed the market by an average of over 1.9% in 2022. Another quant strategy offered by Robeco, with a lower risk profile, has exceeded the market return by more than 10% this year.

Size versus scale

While good performance must form the bedrock of any strategy in the fund management industry, Robeco has other advantages as well. As a mid-sized house it is large enough to offer a broad set of products and solutions to its clients, but nimble enough to act quickly, for instance in ingraining sustainability into its investment approach across the firm.

Ms van Baardwijk argues that absolute size is not an end in itself. What matters is scale: being big enough to bear the rising costs of technology and regulation and be able to attract the talent to build on Robeco’s existing strengths: Sustainable Investing, Quant, Thematic, Credits and Emerging Markets.

An acquisition could play a role here, particularly as the industry has seen a lot of consolidation in recent years. Even ignoring the giants like Blackrock, Vanguard and Fidelity, a group of investment managers including Amundi, Natixis and Aegon in Europe, as well as many US firms, have grown to $1-2 trillion in assets.

ORIX is very supportive of the growth plans of its subsidiaries and given the strong and trusting relationship developed with Robeco, may well use its large balance sheet to back expansion, including a potential M&A deal. In the meantime, there are also synergies with other group companies, such as sharing knowledge and building networks. Already, Robeco distributes the products of Boston Partners, a US-based equities manager, in Europe.

The long-term challenges

When it comes to the future, Robeco’s first task, of course, is to continue to produce good performance for its clients. It also has to generate adequate returns for its owner in an industry that faces increased costs, competition and regulation while needing to invest heavily in talent and technology.

But the real challenge lies in the second part of the mission: to help further a rapid but also realistic energy transition. An estimated $32 trillion will be needed by 2030 to put the world on a pathway to net zero emissions and one of Robeco’s key roles is to support and engage with the companies that can help achieve global sustainability. And that is one of many things that Robeco and ORIX can agree on.

Diversity of thinking is the diversity we need

Karin van Baardwijk urges colleagues to keep on evolving their thinking

When Karin van Baardwijk became Chief Executive of Robeco at the start of 2022, she was the first woman to do so, joining what is still only a handful of female CEOs across the finance industry globally.

Ms Baardwijk readily admits that asset management is not the most progressive of industries. But what counts for her is not just empowering women but assembling a group of colleagues from a variety of backgrounds and experiences. “Diversity to me is about diversity of thinking, which leads to better decision making and hence to better results,” she says.

At Robeco, she is trying to build an organization that reflects the markets and communities in which it operates, with a culture in which employees feel at home. With everyone bringing their unique point of view and building on each other’s ideas, she believes the firm will produce better results for all its stakeholders.

When the war in Ukraine broke out and sent energy prices and financial volatility soaring just weeks into her new role, it reinforced Ms Baardwijk’s determination to break down internal silos and get people connected to develop the broader perspective needed during a crisis. “To me, leadership is bringing out the best in other people”, she argues: “This means you need to facilitate what your colleagues need to perform and to appreciate their unique perspective.”

Her personal perspective is, of course, a part of that. Ms Baardwijk studied law and economics at Utrecht University and started as a financial consultant at KPMG/ATOS before joining Robeco more than 17 years ago, working in risk management and IT services before joining senior management. But she is also a 45-year-old woman with two young sons – and perhaps that leads her to ask different kinds of questions to her leadership team.

Hard work, sometimes saying “No”, and organizing her life in a way that allowed her to grow into increasingly senior positions have been part of her success. But she also credits the fact that she learned from positive examples provided by other colleagues and kept on evolving her thinking, replacing old convictions with new insights. That is more important than having the right background or university on your resume, she advises younger colleagues.

And her true driving force? “I never give up!”, she says.

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