APS Foundation eyes Coolabah, Palisade amid ESG fund closures

The Australian Philanthropic Services (APS) Foundation is looking to reinvest its capital after some of the ESG funds it backed, including the Perennial Better Future Trust and the Melior Australian Impact Fund, were terminated last month.

FS Sustainability recently reported while low-cost responsible passive funds continue to see the majority of fund flows, active strategies, however, are fragmented between winners and losers, with some funds folding due to lack of scale.

APS Foundation portfolio manager for the Focused Portfolio David Wright said he is looking at a low-carbon bond strategy run by Coolabah Capital, while also exploring direct infrastructure investments such as the Palisade Impact Infrastructure Fund, to replace the closed funds.

Wright added he is also considering exposure to long-short equity funds and social housing for the portfolio.

"Long-short equity funds are not an exposure we've held to date in the focused portfolio. We think that's potentially going to be really useful as a way of protecting returns and generating returns if we do hit downward- or even sideward-moving share markets," he said.

"And social housing as an investment may be something if we can find the appropriate fund and fund manager that we look to invest in the Focused Portfolio."

The Focused Portfolio returned 2.6% and 3% for the six-month and 12-month periods ending June respectively.

"It has been a pedestrian return, heavily impacted in particular by the strong run in oil and fossil fuels that most of the managers in this portfolio do not benefit from," Wright said.

"We've deliberately held a fairly high cash rating. It's been a very fluid environment in ESG and sustainable investing. With changes in regulation, we wanted greater certainty and understanding of those.

"We will be deploying more cash... but that has had an impact, certainly on the one-year return, which is not as strong as we would like. And obviously, we need to get that up above that level and closer to the long-term CPI-plus 4% target."

Wright highlighted the Impax Sustainable Leaders Fund and Janus Henderson Global Sustainability Fund performed well, returning investors 11.6% and 7.6% respectively.

He added the portfolio remains positioned to capture the longer-term thematics of the energy transition, sustainable infrastructure growth and those companies positioned for regulated climate reporting and improved governance.

"While performance has struggled in the short term, these thematics remain likely to play out in the long term," he said.