In this series of profiles, we ask leading fund managers to reveal everything from their investment strategy, to their views on cryptocurrencies, famous business leaders they look up to, and what they’d never invest in.
This week our interviewee is Chris Tanner, co-lead investment adviser at JLEN Environmental Assets Group
1. Which sector provides the biggest investment opportunity as we approach the end of 2021, and why?
Environmental infrastructure! We are at a point where the climate crisis is clear and present, and so the most fundamental questions of our economy and our society - how we generate energy, how we move around, how we keep warm and cool, how we grow our food - should be viewed through that lens. Sustainable infrastructure gives us the building blocks upon which these decisions can be taken, and so the opportunity set is massive.
2. What's the biggest economic risk right now?
Over the medium to long term, the climate crisis. It is more than just an economic risk of course, but it is important to understand that damaging our climate and ecosystems bears a staggering financial penalty.
3. Describe your investment strategy
We invest in environmental infrastructure projects, such as infrastructure assets, projects and asset-backed businesses that utilise natural or waste resources or support more environmentally friendly approaches to economic activity, support the transition to a low carbon economy or which mitigate the effects of climate change. We seek to build a diversified portfolio so that no one set of technical, climactic or policy risks predominates. Returns should be infrastructure-like in nature, so ideally we seek some inflation protection and a market backdrop that provides some certainty of revenues, whether through things like subsidy support, long term contracts or the unique defensive nature of the asset in question.
4. Which famous investor or business professional do you look up to, and why?
At the risk of sounding parochial, I find working with the JLEN board very rewarding and I have great respect for the way the directors conduct themselves in working towards their collective opinion on a matter.
5. Name your favourite forever stock(s)
It would be as broad an ETF as possible - I believe in diversification.
6. What would you never invest in?
Something that was clearly bad for the environment. The tricky bit comes when you consider that environmental infrastructure opportunities may contain some negative characteristics - the emissions associated with their construction for example - whilst still being an improvement on the infrastructure that preceded it. We always say that we are an infrastructure fund first and foremost, not a “pure green” fund. Our assets should help in the transition to a more sustainable future, but we don’t claim that they are perfect and are always looking for ways that their sustainability can be improved.
7. Yield or capital growth?
Operational infrastructure assets are in high demand with institutional investors because they typically pay a high level of cash yield, often with explicit inflation linkage. Such assets may have capital growth potential from operational enhancements or expansions, but this will be limited. In recent years, the market has been firmly on the side of “yield” and this has been a strong driver in the growth of the listed renewables fund sector.
Now as returns from operational assets have been eroded by competition, more investors are open to getting involved with projects at an earlier stage and taking construction risk that provides an opportunity for significant capital growth if managed effectively. At JLEN, we anticipate that we will invest in more construction assets going forward, but not at the expense of our yield targets and never exceeding the hard limit of 25% of the Fund. This should provide more capital growth potential and deliver higher-yielding assets once construction is completed.
8. House or pension?
Pension. As I said, I believe in diversification. Also, I’m no good at DIY, so the house always feels like it’s costing me money!
9. What are your thoughts on crypto?
On the currency side, it is not something that we think about on a day-to-day basis. Enabling technologies like blockchain are very interesting though. For example, there could be applications that help in the development of voluntary carbon markets, for example, by giving purchasers and indeed society in general the confidence that a tonne of carbon offset is being uniquely accounted for and not claimed multiple times around the world.
10. What can be done to increase diversity in the fund management industry?
Encourage people from diverse backgrounds to see the fund management industry as a viable and rewarding career option for them, and not a closed shop for people who talk the right way or went to the right university.
11. Please give an example of how you’ve engaged with a company you invested in where you were particularly proud of the outcome? (Or disappointed!)
Our investments tend to be into special purpose vehicles, and so there is not generally the same sense of engaging with a separate management team. However, our projects do tend to have multiple stakeholders from co-shareholders, operators, landlords, government, local communities, etc. Engagement in such scenarios is best when each party has at least some sympathy with the perspective of the others and doesn’t adopt a zero-sum mentality where other parties must lose for it to win.
12. Best bit of advice you’ve ever been given?
When moaning to my boss about a performance measure that I couldn’t control, they told me “I know you can’t control the outcome, but with effort and good judgement you can influence it and that is valuable.” Someone who wants to progress in their career needs to realise that they need to step out of the areas that they can control and into the areas where they have influence, even if that means that they will fail from time to time.
13. What would you do if you weren’t a fund a manager?
I am interested in policy and how good policy can make a difference to the real world, so I could see myself as a civil servant.
