Darren Agombar, CEO of Connected Asset Management, tells us how he is bridging the gap between UK pensions capital and impact investment opportunities, and his plans for European expansion
- Founder and CEO, Connected Asset Management, 2017-present
- CIO and Co-Founder, Smart Pension, 2018-present
- CIO, Lewis Capital Management, 2012-17
- Managing Director, Claradan , 2004-12
- Chief Dealer, Tokyo, Credit Agricole Indosuez, 1996-2002
- Emerging Markets, Standard Chartered Bank, 1985-1996.
- Open University, Psychology
Connected Asset Management Limited is a privately-owned impact investment management firm based in the UK. Its mission is “to move impact investing from niche to mainstream by making it an accessible asset class for pension schemes”.
It does this by connecting impact managers who have interesting ideas, with pension schemes that are seeking to create impact and generate new sources of alpha.
Founder and CEO Darren Agombar tells Impact Investor this is a tipping point in the industry. As a firm believer in the importance of behavioural finance in investment decision-making, and who, rather unusually for the finance sector, trained in psychology, Agombar feels “well placed to spot such an important shift in investor mentality”.
When working as a trader some years ago, he witnessed Japanese pension funds divert capital towards a new phenomenon – the data revolution. “The rise of impact investing reminds me of that shift, but this is much more significant. We’re talking about a paradigm shift which is affecting the very nature of investment itself.”
“We are being given the chance to demonstrate the attractions of impact investment – where having a significant impact can be combined with strong investment returns, rather than returns being a secondary consideration,” he adds. “This is the first time in my own career that I have been able to align my business with my own personal values.”
These are clear. For Agombar, “no economic system is perfect, but capitalism is the best system we’ve got”. However it became obvious to him first during the financial crisis, then again during the Covid-19 pandemic, that “social imbalances have been hugely exaggerated, and there is no so-called ‘trickle-down effect.’ For example, when I look at social housing, the problems are worse than they have ever been”.
He adds: “I’m passionate that pensions have a strong role to play in this area.”
Agombar believes matching pensions and impact managers is an enormous opportunity “because most pension schemes have little if any exposure to impact investing”.
For the managers, “pension capital itself is a particularly attractive form of capital. It is sticky, and it is ‘relentless.’ Pensions have huge cashflow, and they are spending it”.
Agombar also argues pension schemes are the appropriate ‘responsible asset owner’ for these types of investments, thanks to their additional oversight and governance structures.
“We are being given the chance to demonstrate the attractions of impact investment – where having a significant impact can be combined with strong investment returns, rather than returns being a secondary consideration.”Darren Agombar, CEO, Connected Asset Management
For pensions funds, he asserts, impact investing is attractive for a variety of reasons. Firstly, because it is a genuine diversification. “It has become clear to us during the pandemic that most asset classes are hugely correlated and what we believed were diversifications were in fact no such thing.”
For example, the area of social housing has demonstrated strong diversification qualities, comparing social housing REITs to traditional property REITs.
It is also the case that the UK’s defined contribution (DC) schemes empower employees with investment choice, and so are responding to the groundswell towards impact.
The challenge for Connected is finding impact managers that are “genuinely professional fiduciary managers”. He explains: “So many of them have the correct intentions but do not have the correct processes, frameworks, or investment returns. These are necessary in the professional pensions space.”
Another challenge is responding to the commercial pressures on DC pension schemes. “It is unimaginable that a board of trustees will ever give money to a product which is not attractive in pricing terms.”
As the UK’s Impact Investing Institute recently highlighted, there are also perceived regulatory obstacles to pension schemes’ involvement. He adds: “We’re not lobbying for change. We’re creating an investable product with the right fees and the right liquidity. I’m not looking to change the rule – I’m looking to create a business.”
In light of this, Agombar says he has “identified what are the rules of engagement and created a product to work according to those rules”.
A growing platform
Connected has hired Legal and General’s head of DC strategic relationships John Tsalos to drive their push. Next month, they are launching a fund of funds with a seed investor, and approaching investment consultants, who remain the main gatekeepers in the UK pension fund market.
He says: “We have worked closely with Hymans Robertson to ensure the product works in the current market. I believe a fund is necessary to meet the significant potential demand from smaller schemes for a pooled investment vehicle. We want to give them a ‘taste’ of impact, and to help educate them in investing in this area, and also what the potential value is to their scheme members.”
Connected’s Multi Impact Fund invests in four impact pools of capital: social housing, microfinance, ‘tech for good’ and renewable energy. Each investment must “produce a positive, measurable and intentional impact as well as a financial return”. An additional allocation to green bonds enhances the liquidity of the fund, as well as its environmental impact.
The fund aims to have a long-term investment horizon that aligns with the goals of pension savers, and targets returns of CPI+3%.
Agombar also hopes to see significant segregated fund investment and is creating a platform of asset managers, a gateway for larger pension funds.
“We have identified four particular areas of focus and we aim to find a business partner in each area. The first area of focus is ‘tech for good,’ and we have acquired Bethnal Green Ventures. We will be announcing another specialist in the social housing area shortly.”
Agombar admits they are “growing fast, incorporating people and businesses, and we have to be careful to take our time in selecting both”. He is determined to avoid greenwashing and says “it is important that all of the impact managers we choose have impeccable impact credentials”.
Europe is a clear future priority. With managers “we will not be just UK-focused, but are keen to have geographical diversification as well”.
“Further out, it is our clear intention to attract capital in Europe. I believe the concept and the mission of connected asset management will attract huge attention there. We have a strong panel of advisors associated with the business who will help us do this,” he adds.