Q&A with Rich Pace, Head of North American Distribution, Osmosis Investment Management

By Ed Rowley, January 2024

‍Rich Pace heads North American distribution for Osmosis Investment Management.

Osmosis is a quantitative equity manager that targets better risk-adjusted returns across its range of portfolios while delivering improved environmental outcomes. The firm is headquartered in London and manages over $14bn globally, among its affiliates, primarily for institutional investors.

Prior to Osmosis, Rich was head of institutional marketing, business development and investor relations for Columbus Circle Investors’ long-only, US growth equity business.

In this Q&A, Rich answers my questions on how to reach and serve clients, and offers insights into the US institutional market and sustainable investing.

Rich, thank you for sharing your thoughts. Tell us about your firm.

Osmosis offers a smarter approach to sustainable investing, by focusing on a public company’s ability to manage their carbon water and waste resources more efficiently than their same sector peers.

We have a proprietary research team, that cleans, validates and standardizes publicly available environmental data.  Companies are compared to their sector peers through the creation of resource intensity scores for the universe. Osmosis then builds systematic portfolios based on the most resource efficient companies across the broader economy.

Our assets have grown from $2b in 2020 to $14b today, as investors realize that resource efficiency is an independent alpha signal and has little correlation to other common investment factors. The added kicker is that these portfolios generate approximately 65% less carbon, water and waste than the index.

We are essentially marketing a new form of quality that has yet to be priced by the market. Being able to bring this unique and truly differentiated investment offering to a very saturated ESG marketplace is really exciting.

What are some of the main things you’re focusing on right now?

I am focused on raising awareness of Osmosis investment strategies in the US. We are a London-based company, so almost all of our growth to date has been in Europe, Australia and Asia. There is an untapped, open-ended market opportunity here in the US.

Outside the US, we have partnered with the world’s largest sovereign wealth funds and public pension funds, helping them add alpha to their global passive equity exposure while simultaneously delivering huge environmental benefits. We are trying to do the same in the US.

We had a lot of initial interest in Osmosis strategies through the Xponance emerging manager platform. This has enabled us to manage money for some of the biggest pension funds in North America. My goal is to further develop these relationships and foster new relationships with other large institutions that have sustainability mandates. Many of these are not being properly addressed by traditional ESG strategies, that notoriously take on too much industry risk by simply decarbonizing their portfolios.

When it comes to marketing and sales, what’s one of the biggest challenges you wish you could solve?

The herd mentality. Generally speaking, investors find a high degree of safety in numbers by following the status quo. Thinking independently potentially adds a layer of risk that many allocators may not want to confront. So, getting investors to think differently about a topic and act on it, is a challenge.

I would also add that independent thinking and thought leadership is critical to differentiate yourself. Creating good content can be a distraction and is resource intensive, but expressing your unique ideas and insights is no longer a nice amenity, it is a must.  

In terms of reaching new clients, what methods are working best?

Multiple strategies need to be deployed. First you need a good database to access emails and contact information. We use eVestment and Dakota. I find Dakota extremely useful as it is a database built by salespeople for salespeople. It has a high level of contact/firm detail, consultants retained, allocation breakdowns and upcoming mandates.

A social media presence is also important. We have a team dedicated to posting key information and achievements on LinkedIn multiple times per month. We have a growing number of followers across our company LinkedIn page and personal pages. Connecting with as many prospects and contacts as possible is a good way to advertise your success without flooding their inboxes. This type of subliminal messaging is important to building a brand.

You have over 20 years of experience in investor relations and business development in investment management. What are some of the most important things you’ve learned?

First, never stop networking and expressing interest in others, before yourself. Two-way relationships always come full circle in one form or another.

Second, be patient throughout the sales cycle and resist urges to pressure prospects. Investments happen on their time frame, not yours. Quiet periods are not always a sign of disinterest.

Third, investors appreciate being educated, not bothered. They will almost always take your call if your communications have proven to be insightful and give them a fresh perspective. Most importantly, after a meeting, a prospect should always be able to reverse engineer and easily deconstruct your message. Inevitably prospects will need to explain what they heard to their colleagues or team. So, communicating the right amount of content, at the right time, is critical.

Looking forward, what trend or change do you see happening now?

ESG is facing an uphill battle in the US, where some institutional investors are reevaluating their fiduciary duty and trying to figure out how to marry social responsibility with their investment objectives, while many ESG managers are finding it difficult to earn a market rate of return. ESG firms who cannot address this challenge will need to reinvent themselves or become obsolete. And additional regulations will require that managers put tighter controls in place to support their sustainability claims.

Osmosis’s core strategies were launched with the intention of specifically addressing these hurdles by managing the industry risk that many ESG firm’s neglect. In addition, 3rd party ESG data and scores have proven to have too many disparate KPI’s, resulting in inaccurate and highly inefficient data. Since its launch in 2009, Osmosis has had an in-house environmental research team; this ensures our models are using the most accurate and relevant data for our needs.

Another trend is the amount of bespoke strategies and services that are being offered by investment managers who are using data analytics and digital platforms to deliver customized solutions. This is happening not just in public equity, but also in private equity, private debt, real estate and infrastructure. Firms that use bespoke solutions move from a transactional relationship to a much tighter bond, as a value-added partner.