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(March-2002) LGSS moves into SRI mode
The $3.4 billion Local Government Superannuation Scheme (LGSS) has moved into socially responsible investment (SRI) using a unique ‘overlay system’.
LGSS CEO Brett Westbrook says it will be used to cover $100 million in each of LGSS’s domestic and international equity classes, and will later be extended across the whole portfolio and to other asset classes.
LGSS chief investment officer Mark Sainsbury adds that the SRI investment system will not interfere with or be detrimental to the portfolio’s returns in any way.
He says LGSS found that fund managers would go through an investment process and select stocks that would suit their way of contrasting portfolios, but it was difficult to extend the sustainability screening to a large range of stocks without interfering with the managers making the investments.
“The solution was an overlay system which uses a long-short portfolio. This means looking at portfolios and finding ways of exiting stocks you don’t want and finding ways of replacing those stocks with other securities but still leaving characteristics intact,” he says.
“The advantage of a long-short equity portfolio is that it can be applied to both international and domestic equities… and provides transparency, controllability and flexibility, while not interfering with the matrix of the portfolio.
“The overlay solution contains positive and negative screening, as well as engaging features,” says Sainsbury, adding that it will exclude investments in tobacco, some forms of gambling, nuclear waste, logging of old forests, some elements of workplace practices and armaments.
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