Hedgeweek article on Aurum’s embedded impact® approach

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In summary…

It is rare one can apply the term ‘innovative’ in financial markets with any real conviction, but it absolutely holds true for Aurum Fund Management Ltd (Aurum), a Bermudan fund-of-funds manager with a commitment to environmental conservationism and sustainability.

Over the last 25 years, this ESG mission has been at the heart of Aurum’s business. In 2002, it launched its first embedded impact® fund and took the decision to use 100 per cent of the Fund’s management fee to support a number of charities, including Synchronicity Earth, a registered charity that supports the conservation of biodiversity, ecosystems and species at risk around the world.

All of the capital donated from the Fund’s management fee to Synchronicity Earth is done so through the Synchronicity Foundation, which Aurum also established in 2002.

Adam Sweidan, CIO of Aurum Funds Limited and founder and trustee of Synchronicity Earth, says that in 2008, “Aurum decided to focus on the environment. Only about 3 per cent of global philanthropy goes to the environment and we think it is becoming a pressing issue. That led us to establish Synchronicity Earth, an environmental charity that looks to create sustainable solutions to some of the world’s pressing conservation issues.

“The hope is to scale up and increase the money Aurum can put towards conservation, with a particular research focus on underfunded species, such as amphibians and Asian species.”

Other research programmes include a focus on conservation in the Congo Basin, a Freshwater programme, and a High & Deep Seas programme – details of which can all be found on its website.

The fund has generated approximately USD8.5 million for over 70 organisations in 58 countries.

The portfolio of Aurum’s embedded impact fund contains a mix of liquid trading strategies including event-driven, systematic macro and multi-strategy. “We want a portfolio that performs through different market cycles and offers a low correlation to global equity markets. Since inception, the fund has had an extremely low correlation to global equities and to bonds,” Sweidan confirms.

The fund was shortlisted for this year’s AIF Factor at ABN AMRO Clearing’s Amsterdam Investor Forum (AIF) 2020, which takes place at the bank’s headquarters in Amsterdam on 5th February.

In February 2019, Aurum launched its second embedded impact® fund. The same principal of using 100 per cent of the management fee earned by the Fund applies, the only difference being that at present 50 per cent of it goes to environmental programmes and 50 per cent goes to humanitarian programmes.

The second Fund supports the Seneca Trust, a charity focused on disability, health, displacement and education. Whereas Synchronicity Earth targets the ‘E’ in ESG, the focus of the Seneca Trust is more on the ‘S’.

“The fact that all of the management fee generated by Aurum is used helps take away all of the structural stress that charities have; keeping the lights on, managing operating costs etc. One could almost think about Synchronicity Earth as a free fund-of-funds for environmental giving,” explains Sweidan, who adds:

“The overarching focus is on underfunded, overlooked conservation challenges. One of the things Synchronicity Earth invests in is regeneration programmes – tree planting, developing mangroves, re-wilding etc. Investors can physically see the impact of the work being done, as a result of funding from the management fee; something that cannot be said of other ESG-related funds.”

With ecological risks increasing in tandem with climate change, some species are facing dire straits; in particular amphibians. Some 41 per cent of species are threatened, prompting Synchronicity Earth to fund the Amphibian Survival Alliance, the umbrella body for amphibian conservation.

The operating model at Synchronicity Earth is similar to Aurum’s own model: it has a 14-strong team including analysts and researchers who take a top down and bottom up approach to determine which charities to work with.

“One of Aurum’s measurements as a business is how much we can contribute to environmental impact projects,” explains Sweidan. “Aurum has been involved in many initiatives over the years. Last year, for example, we supported something called “Flourishing diversity”, a platform to amplify the voices of indigenous peoples from around the world, while in 2018 we sponsored an ocean risk summit in Bermuda.”

Back in 2014, Aurum set up Project Regeneration, a programme run by Synchronicity Earth to support local organisations in Southeast Asia, Latin America, the Caribbean and sub-Saharan Africa to restore severely degraded forest, wetland, riverine and coastal ecosystems.

Aurum has also identified the need to apply philanthropic funding to protect African forests, which are currently receiving insufficient funding levels compared to Latin America and SE Asia. It has been active on the African continent since 2012 developing a comprehensive programme to address the threats in a more coordinated fashion.

This illustrates the diversity of research initiatives being funded by Synchronicity Earth and the Seneca Trust.

But it hasn’t been easy.

“Environmental giving is very complex, and it takes a lot of research work and due diligence,” asserts Sweidan.

“The thinking was, why not use the money we are generating from the Fund to build the infrastructure to allow us to make multiple impacts on the environment. Now, 10 years on, that is starting to happen. More hedge funds are choosing to partner with Synchronicity Earth. The next step is to raise the money to take action over the coming years. This is a long-term programme.”

“The hedge fund industry could have the biggest environmental impact of any industry on the world. If every hedge fund did real philanthropic work as part of its commitment to ‘E’, it would bring billions of dollars into the NGO world.”

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