Pacific Asset Management (PAM) is an independent asset manager based in London. PAM’s investment teams manage global assets of more than $4.4 bn. The firm’s single manager Craft Investment approach offers strategies on markets that are less efficient, while its multi-asset teams offer technology-enabled and risk-targeted fund ranges. PAM also offers sustainable multi-asset portfolios, as well as an Article 8 global long-only Longevity and Social Change Fund.
Dani Saurymper is the portfolio manager at PAM’s Longevity and Social Change team. Before joining PAM in July 2021, he worked at AXA where he was portfolio manager of the AXA Framlington Longevity Economy fund, portfolio manager of the AXA Framlington Health Fund and research lead for health, ageing & lifestyle. Saurymper has more than 20 years’ experience in the healthcare sector.
Julia Varesko is a senior analyst in PAM’s Longevity and Social Change Team. Prior to joining PAM in September 2021, she was a senior analyst covering diversified financials at JPMorgan. She has also held roles at Elsworthy Capital and Berenberg Bank. She is a CFA charterholder and holds both an MSc in accounting and finance from the London School of Economics and a BSc in economics from University College London.
What is the value of the assets under management in the fund?
Dani Saurymper: Currently $50 mn as the fund was only launched in late October/early November 2021. We have lofty ambitions and believe the capacity for a fund such as ours could be at least $1 bn.
Do you split geographies/sectors?
Saurymper: We both weigh in with opinions and perspectives but, given my background in pharmacology and having run both a healthcare fund and the longevity fund at AXA, my focus tends be more oriented toward healthcare along with consumer-related sectors.
Julia Varesko: The fund has significant exposure to consumer discretionary, consumer staples and diversified financials, too. We divvy them up between the two of us and often work together on a single idea and bring different perspectives. We look at micro and macro drivers to determine whether something could be a good investment.
Another team member, Lucian, is involved in quantitative work around the purity of exposure to our theme and documenting ESG-related manners. He helps us identify the investible universe and we refresh monthly how we score companies from an ESG perspective. There is a large amount of ESG data to process! I originally covered industrials, chemicals and parts of consumer discretionary but my biggest recent specialism was financials. And financials are a big focus for us.
Given that you are an Article 8 Fund, do you use external ESG ratings agencies?
Saurymper: We use external sources such as MSCI, Sustainalytics and S&P. We know there are limitations with all data providers. MSCI, for example, relies on data supplied by companies. Scores from FTSE and MSCI might be very different for the same company as everyone’s methodology is different so if a company has [two] very different scores, we might need to scrutinize that.
Which sectors do you exclude?
Saurymper: Alcohol, armaments, fossil fuel extraction and refining, fossil fuel power generation, gambling, iron and steel production, mining, nuclear power, pornography and tobacco.
The whole ethos of the fund acknowledges that the world is living longer. A child born in the developed world today has a better than 50 percent chance of living to 100. Given medical breakthroughs, we’ve got very good at not dying and are now able to live to old age with multiple diseases. As an Article 8 fund, we avoid companies that are detrimental to our lifespan or our ‘healthspan’. – the period of our lives in which we live free of illness – so drinking and smoking are excluded.
Tell us more about your themes.
Saurymper: ‘Later living’ – the over-80s will likely need assisted living, nursing at home or they might be in and out of hospital and require food services or physiotherapy along with other products and services such as health insurance or remote monitoring. We also consider what we do in our early years as this impacts what happens in our later years. Another theme we focus on is ‘Education and wellbeing’, which encompasses areas such as fitness, nutrition, vision, dental care, vaccinations, diagnostic testing and so on.
‘Lifelong learning’ – the traditional three-stage life model of education until perhaps 20, a 45-year career and then retirement is not going to be possible for the majority of people, particularly if that retirement period lasts 35 years. Some jobs might become obsolete over that time frame. For example, truck drivers might be usurped by driverless vehicles, or builders may not be physically capable of doing their job as they age and so need to retrain.
Certain industries, such as the medical profession, are going to be in greater demand. In the US, there is a predicted shortfall of 140,000 doctors in the next 10 years. Yet as we age, we will become more dependent on doctors and nurses and consume more healthcare products and services. Therefore, companies that provide medical degrees will have a secular tailwind.
What is your minimum market cap?
Saurymper: Typically, we look for a minimum of $2 bn but we do have one holding under that threshold currently. We take into consideration liquidity as well as the risk-reward of a potential investment. We do not invest in private companies.
How about your average holding period?
Saurymper: At least five years but the world is changing rapidly and new technologies can displace incumbents so we keep challenging our investment theses for the companies we hold.
What is the average size of a holding and what’s your largest holding?
Saurymper: Between 1 percent and 4 percent when we initiate a position. More than happy for those positions to grow larger but no single asset can represent more than 10 percent of the fund’s assets. Holdings of more than 5 percent cannot in aggregate exceed 40 percent of the fund’s assets – that’s a UCITS ruling.
Tell us about some of your most interesting holdings and why you invested.
Saurymper: Exact Sciences is a molecular diagnostics company specializing in the detection of early-stage cancers. Exact has a unique diagnostic test called Cologuard – a non-invasive cancer screening test that helps detect colorectal cancer. The sooner you can catch something, the better the outcome.
The company is also developing blood-based tests for liver, lung, pancreatic and esophageal cancers, so rather than a biopsy, which is time consuming and can be extremely uncomfortable for a patient, the firm is seeking to launch a blood-based screening product.
Brunswick is a global leader in the marine recreation industry. It manufactures boats and engines – Mercury is its brand – and provides a comprehensive collection of parts and accessories. Boating is not the cheapest of leisure pursuits but ‘wealthspan’ is another concept that impacts our thinking when it comes to investing in the age of longevity.
Roughly 30 percent of the US population is over 55 but has greater than half of the wealth, as well as greater spending resilience. The typical age of a boat owner in the US is late 40s/early 50s so we see Brunswick capitalizing on this silver dollar.
EssilorLuxottica is a global leader in the design, manufacture and distribution of ophthalmic lenses, frames and sunglasses. As we age, eyesight deteriorates and many people remain untreated, so it is a huge growth opportunity. Around 65 percent of all visually impaired people in the world are older than 50.
There is a lot of technology that goes into a lens these days, whether it be single vision, varifocal, photochromatic, blue-light filters or even myopia management and control. Essilor produces 100 mn glasses and sunglasses, including the famous Ray-Ban and Oakley brands, as well as 565 mn lenses. Ray-Ban Stories are smart glasses that capture images on the go and the company is in partnership with Meta in this developing technology.
What is your benchmark and performance?
Saurymper: MSCI World and 93.1 percent active share. We’re keen as an article 8 Fund to look at MSCI SRI. In 2022, the fund outperformed the MSCI Growth Index by 14.2 percent, the MSCI SRI Index by 5.9 percent and its reference benchmark by 1.3 percent.
Are you active owners? Do you vote your proxy?
Saurymper: We use the ISS SRI-aligned proxy voting service. It is one of a range of voting frameworks ISS offers and we see it as the most closely aligned with our focus on the social dimension of ESG. It is particularly rigorous in the sense that it targets both financial and social considerations in the voting process.
One of the reasons we focus on the ‘social’ pillar of ESG is that our companies tend to really rely on human capital – healthcare, education and finance are all about human capital: you need to retain, attract and keep people happy in their workplace. ISS voting recommendations consider management compensation structures and company performance relative to ambitious diversity thresholds.
Do you have to meet management before you buy a stock?
Saurymper: We generally like to meet a management team – ideally in person, not virtually. We much prefer a face-to-face meeting and like to build a track record/trust.
What is your preferred method of meeting management: in person, virtual, conferences?
Saurymper: When we initially meet a company, we might prefer a group meeting and/or liaise with IR with a raft of questions. When we are getting more serious, we like to meet one-on-one. We also use external intelligence such as expert networks, industry conferences and scientists in a medical field so we don’t just leverage the insights from management – we cross-reference via external sources. Additionally, we organize an annual investor field trip to visit 15-20 healthcare companies across Europe.
What is your outlook for 2023?
Saurymper: We do think about the macro even though a lot of our investments are less sensitive to it. Healthcare firms tend to outperform in a stagflationary environment although some are more discretionary than others. Ultimately, we’re looking for cash-generative businesses with proven operating models and strong innovation characteristics that have exposure to the durable and resilient growth offered by the Longevity and Social Change theme.
Varesko: We are positioned for a range of outcomes and feel ready for whatever 2023 brings. In 2022, we had war, inflation exceeding expectations and interest rates going up rapidly. Our portfolio has a long-term vision and the companies within it have a secular tailwind from demographic changes. We expect that ‘silver dollar’ to be more resilient. Also, we look for high-quality businesses with strong management and a track record of execution.
Gill Newton is a partner at Phoenix-IR, an independent IR consulting firm