Shaping The Industry
See how higher standards and ethics could have a more positive impact on the financial services industry.
Six of South Africa’s largest state-owned enterprises are being held to a higher standard of accountability from an unusual source — an asset management firm led by a CFA® charterholder.
In August 2016, Andrew Canter, CIO of Futuregrowth and CFA charterholder, made an unprecedented statement. On the brink of plans to lend more than 1.8 billion rand to three state-owned entities, Canter announced that his firm had ceased lending to state firms.
South Africa’s political climate at the time was host to a conflict between different governing branches, a lack of clarity on the role of patronage networks, and a challenge to the National Treasury’s independence. In order to protect its clients from growing uncertainty, it became unjustifiable for Canter’s firm to continue lending to state-owned entities.
Futuregrowth was founded in 1995 with the belief that investors can make a positive difference in society while generating high investment performance for their pension fund clients. This mission had driven Futuregrowth to pioneer development funds that invest in South Africa’s social and economic infrastructure — including renewable energy, low-income housing, education, and urban regeneration projects — for many years, and delivered successful long-term returns for their clients.
Canter put his foot down when he saw six of South Africa’s largest state-owned entities exhibit a growing lack of transparency in corporate governance and questionable, politically-influenced decisions.
However, Canter’s actions came with a promise: if firms demonstrated greater transparency by providing Futuregrowth with information about the independence of their boards, investment and credit committees, and procurement processes, the firm would begin lending again.
“I’m not interested in politics. All we can do is assess the companies we lend money to and take appropriate fiduciary decisions for our clients which we have to answer for,” said Canter in an interview with Bloomberg.
To Canter, ethics is rooted in strong actions, not empty promises.
Canter believes merely stating “do the right thing” isn’t enough when teaching asset managers how to make ethical decisions. By teaching asset managers how to think broadly about their fiduciary duties not only to clients but to society as a whole, he believes that the finance industry has the power to transform more than just client portfolios.
“Responsible investors can choose to ‘vote with their feet’ or, preferably, actively engage with companies on matters of governance and sustainability,” said Canter.
CFA® charterholders commit to a professional code of conduct, placing ethics at the heart of everything they do.
CFA Institute develops and administers standards that guide the investment industry and help ensure investment professionals measure up.
73% of investment leaders expect environmental, social, and governance (ESG) factors — a key component of the CFA Program curriculum — will become more influential, with governance being the most cited.
Andrew Canter, CFA
Those transformations are evident through Futuregrowth’s actions. Within months after Futuregrowth’s decision to halt funding, four of the state-owned enterprises agreed to let Futuregrowth review their governance structures, thus shifting policies and procedures towards what Canter believes are better practices of transparency and governance.
“Once we had more information, we could see that some state-owned companies had basically sound governance that required tweaks, while others needed much more work,” said Canter. “We also gained more insight into how the checks and balances work in practice.”
Canter has lived through South Africa’s historic and hopeful transition to democracy but is now fearful that the people of South Africa have become accustomed to viewing some institutions as untrustworthy. As a responsible investor and fiduciary manager, Canter refuses to accept this lack of transparency, even if it comes with business, reputational, or even personal risk.
Financial responsibility is reciprocal. Because Canter commits to providing transparency to his clients, the institutions and government bodies he invests in have a responsibility to provide it as well.
Futuregrowth’s decision ended up being a declaration — a declaration that Canter hopes will be embraced by investment managers facing other ethical issues around the world.
“Investors are decision makers in the allocation of capital toward sustainable enterprises and should play a key role in holding companies to account for their practices,” said Canter.
By holding the institutions who serve the people of South Africa to a higher standard, CFA® charterholder Andrew Canter measures up.