Arka's moral investment strategy draws few clients
Arka-Invesco is probably the only pension fund in Poland that has bet on "ethical investing," a commitment to avoid investments in companies whose products might be ethically questionable. It's also the only fund in which the Catholic Church holds shares.
So far Arka-Invesco has attracted less than 100,000 clients, despite last year's hope of attracting 300,000, 3% of the pension fund market. The fund has not spoken its last word, though, said President Rafal Andrzejewski.
"Right now, we are counting on clients who are considering switching funds," Andrzejewski said. In fact, pensioners who have already decided to change funds make up 50% of Arka-Invesco's new clients, he said. The deadline to choose a pension fund for people less than 30 years old was moved to March 31, 2000.
As for why people should switch to Arka-Invesco, according to Andrzejewski, the fund offers a particularly stable investment. "No speculation, only long-term investments," he said. In 1999 more than 80% of Arka-Invesco's investment portfolio consisted of treasury bonds and about 19% was shares of companies listed on the Warsaw Stock Exchange (WSE). As of last December, Arka-Invesco's pension fund managed more than zl. 5 million ($1.21 million) in assets just 20% of what the Social Insurance Office (ZUS) should have transferred to the fund.
But what distinguishes Arka-Invesco from other funds is the assurance it gives regarding "ethical investment," an issue that gained media attention about 20 years ago in Western countries. Controversies have swirled around ownership of shares in South African firms during the apartheid period and Chinese firms that may use child labor. In the 1990s, funds owned by the Catholic Church or charity organizations refused to invest in companies that had Chinese branches where children are employed.
According to Krzysztof Sikorski, member of Arka-Invesco's managing board responsible for asset management, the fund's unique commitment may become a real advantage in the future. "Less than 20 years from now, the Warsaw Stock Exchange will become part of a global European stock exchange and Poland will have to face the problem of ethics investing," he said. Before joining Arka-Invesco, Sikorski managed assets at Pioneer First Polish Trust Fund. "In my opinion, the use of ethics criteria will guarantee better performance than without them," he said.
The fund is run by Arka-Invesco Universal Pension Fund Society (Towarzystwo Emerytalne), owned by the Conference of Polish Bishops (20%) and Amvescap PLC (80%), a $275 billion (in 1999) asset management firm. But it was the minority owner, the Conference of Polish Bishops, that decided that Arka-Invesco wouldn't invest in companies abusing its ethical principles.
Amvescap resulted from a merger of U.S. AIM Management and British Invesco, which has almost 100 years of experience in investing. The company manages, for instance, assets of 1 million American pensioners and cooperates with religious, charity and social organizations worldwide. Amvescap PLC's $790.2 million operating profit in the first half of 1999 was up 24% vs. the same period in 1998.
"At the beginning, other funds observed us with suspicion, now they see we function the same way they do," Andrzejewski said. In a 1995 Gallup survey of individual investors in Western European countries, an average 56% cited the environment and 61% cited ethical issues as important to their investment decisions. Only 11.13% felt that ethics and the environment were irrelevant to investment.
"It makes sense," said Citibank analyst Pawel Zach, of Sikorski's prediction that Polish investors will become increasingly concerned about such issues. "Such a market of people who care about the choices they make, may develop," he said. "But, in fact, ethical investing may mean something totally different in each case."
Meanwhile, currently in Poland, with only 221 companies (including National Investment Funds) listed on the Warsaw Stock Exchange, investment choices are far fewer to begin with. "Of course, we wouldn't invest in Unimil (a publicly listed, Polish producer of condoms), but the Polish stock exchange is still too small to make choices in terms of ethics investing difficult," Andrzejewski said.
According to Sikorski, while ethical investing is not a serious problem yet, Poland will be soon be involved in the process of globalization, which will seriously widen the range of investment choices. "Besides, already, in accordance with the pension law, funds can invest abroad up to 5% of their portfolio," he added.
