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Client demand: Swedish pension fund commits $100 million to BlackRock’s emerging markets impact fund

ImpactAlpha, May 10 – European pension funds, including Sweden’s state funds, have been at the forefront of the institutional drive toward sustainable investing, and specifically the UN Sustainable Development Goals.

Now, Swedish pension fund AP1 has prodded BlackRock to create an emerging-markets equity fund “that takes into account measurable social and environmental impact without compromising on financial return.”

The deal sends a number of signals: That environmental, social and governance, or ESG, factors can provide insights in emerging-markets investing; that algorithmic stock-picking technology can provide insights into sustainability as well as investments; and that giant BlackRock has the capacity to spin up new sustainable investing options, at least when a major client is writing a nine-figure check. The AP1 fund managed 323 billion Swedish krona ($37 billion) in assets as of July 2017.

BlackRock has been expanding its sustainable investing options, especially in light of CEO Larry Fink’s public call for corporations to embrace a broader social purpose.“We are pleased to have the capabilities to deliver this solution for AP1, and respond to the sentiment being expressed by investors, especially in the Nordic region, to expand the sustainable investment universe,” said BlackRock’s Debbie McCoy. The fund is also open for investment to other European investors.

BlackRock’s Systematic Active Equity division, which uses quantitative and algorithmic analysis for its stock picking, is used to test products that spread to the rest of the firm.

The unit, which manages more than $100 billion, uses 100 to 200 “signals” at any time, including non-financial information such as employee happiness, according to a report in the Financial Times.

ImpactAlpha could not determine the stocks selected, nor the screening criteria, but it seems BlackRock may see ESG analysis as an emerging-markets edge, for now. “The competitive advantage from such signals can quickly be lost, so (Systematic Active Equity) often gives a heavy weighting to new signals, and gradually reduces the money allocated as their effectiveness ‘decays’,” according to the FT.

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