Impax CEO Says Sudden Loss of $6 Billion Mandate Is ‘a Blow’

The chief executive officer of Impax Asset Management Group Plc says the sudden exit of one of its biggest clients represents a setback, as the firm embarks on a number of strategy adjustments to reverse a losing streak.

Author of the article:

Bloomberg News

Gautam Naik

Published Jan 22, 2025  •  5 minute read

Homes destroyed by the Eaton Fire in Altadena on Jan. 20. Photographer: Kyle Grillot/Bloomberg Photo by Kyle Grillot /Bloomberg

(Bloomberg) — The chief executive officer of Impax Asset Management Group Plc says the sudden exit of one of its biggest clients represents a setback, as the firm embarks on a number of strategy adjustments to reverse a losing streak.

Article content

Article content

Impax is still recovering from a decision by St. James’s Place Plc to pull a £5.2 billion ($6.3 billion) mandate, which the wealth manager said was needed to “improve diversification.” The loss of the portfolio, which St. James’s awarded to Schroders Plc, has resulted in an 8% drop in Impax’s total assets under management, bringing them to around $40 billion. 

Article content

News of St. James’s exit, announced in mid-December, sliced almost 25% off Impax’s market value in a single trading session. Since the end of 2021, the asset manager’s share price has plunged more than 80%.

“We always knew that it was a risk that these mandates might disappear,” Ian Simm, CEO of the London-based money manager known for its focus on the transition to a more sustainable economy, said in an interview. “It was a blow, but it was always possible given our risk analysis.”

Simm said Impax’s focus on actively managed strategies has created headwinds of late. It’s a trend that was on display in a recent Morningstar Inc. analysis, as the researcher estimates that in the US alone, actively managed funds have slumped from almost 90% of the total market for sustainable assets to just 60% in the past decade.  

“We’re just seeing that some asset owners and our clients are in a bit of quandary as to what to do with actively managed funds,” Simm said.

The asset manager has long stood out as a giant in low-carbon investing, and its fate has become emblematic of the hurdles faced by the broader market for sustainability. After some bumper years during the pandemic, when interest rates and demand for energy were at crisis lows, the strategy has struggled to keep up. Higher interest rates, an energy crisis and political attacks in the US have proved a toxic cocktail for investors targeting ESG (environmental, social and governance) themes, with actively managed strategies suffering the brunt of the pullback.

Article content

Article content

“Impax has been hurt quite badly” by the loss of St. James’s, said Ronald van Genderen, an analyst at Morningstar. The asset manager relies to a large extent on such relationships to distribute its funds, and it “makes you quite vulnerable if your partner says it’s going to terminate,” he said. “You’re hit by massive outflows.”

Simm downplayed the possibility of losing more mandates. But with roughly 90 clients, Impax will inevitably see some churn, he said. Employees are already feeling the fallout, as Impax notes its bonus pool in the fiscal year 2024 was about 11% lower than in 2023. 

The Impax Global Environmental Markets Fund, which has almost $2.4 billion under management, is up roughly 4% so far this year. But overall since the beginning of 2022, when interest rates started to rise, it’s stagnated, according to data compiled by Bloomberg that takes reinvested dividends into account. That’s despite having almost 60% of its allocations in the US, where the S&P 500 Index has gained more than 30% in the same period.

Shares in Impax are down about 16% this year, compared with a roughly 5% gain in the FTSE 100 Index.

Article content

The asset manager has been adding exposure to credit markets and Big Tech, in an effort to improve returns. Simm said Impax has “been working hard and successfully to diversify the business that was underway with the fixed-income growth.”

The firm says its most valuable relationship continues to be with BNP Paribas Asset Management, which is also its largest shareholder and biggest European distribution partner. Impax estimates that outflows from the French distribution channel and US mutual funds have slowed.

Simm said he’s optimistic that the incoming administration of President Donald Trump may bode well for Impax. That’s despite Trump’s decision to roll back Biden-era climate policies, drag the US out of the Paris climate accord and double down on support for fossil fuels.

But Simm said he can imagine a scenario in which low-carbon assets get a boost, “if Trump’s policies end up being broadly positive for the US economy and US industrials, if businesses continue to have an incentive for materials and energy efficiency, and if there is a rational response to wildfires, storms and floods that we’ve seen in the US over the last 12 months.”

Article content

Other asset managers have drawn similar conclusions, based on an assumption that Trump’s policies around tariffs and energy security might end up supporting US clean-energy sectors such as solar.

For now, though, analysts tracking Impax say there’s a risk the asset manager may see continued outflows. Alexander Bowers of Berenberg is predicting £6.8 billion of net organic redemptions in the first of half of 2025.

A quarter of Impax’s client base is in the US, and the political backlash against ESG in the world’s largest economy has already left a dent, with Morningstar estimating that Impax suffered more than $850 million of US outflows last year. Parnassus Investments, one of the US’s largest sustainable investors, faced the worst redemptions, at $7.3 billion in total, Morningstar said. Meanwhile, Vanguard Group Inc., known for its index-tracking products, was the best-selling firm in the US for sustainable funds last year.

Simm said Americans will have to wake up to the link between the devastating fires and hurricanes that regularly upend their lives, and climate change. And that ultimately means their investment habits will follow, he said. 

Article content

As losses from natural catastrophes mount, “they do need to take account of their environmental risk,” Simm said. “They can, some of them, deny it’s caused by climate change, but they can’t get away from the fact that it’s actually happening and they need to do something about it.”

Against that backdrop, Impax is exploring investments in US companies that can boost resilience against such disasters. These include companies that provide fire-sensing and monitoring equipment; businesses using satellite technology to help local governments manage riverbank overflows; and companies involved in new road design to reduce temporary flooding.

“We’re definitely doubling down on speaking to US asset owners because we do think there’s a huge opportunity to invest in small and mid-sized businesses” that work on infrastructure resilience, Simm said. Such investments “can be incredibly positive to portfolios, and we can follow that thesis without tripping over questions around fiduciary duty, ethics or politics.” 

(Adds percentage of US allocations of Impax fund, in 10th paragraph.)

Article content