Eco Investor June 2018
August Investments to Wind Up After 37 Years
August Investments Ltd, Australia's longest running environmental and ethical investment vehicle, is now winding up after over 37 years of investing.
Managing director Damien Lynch, who helped found August Investments in 1981, said the day to day back office management of the fund, which he has mostly done pro bono, is now too time consuming and the fund is too small to afford to hire these services.
However, he still enjoys the investment process and will continue to manage portfolios for a small group of private clients.
Chairman Thomas Goodman said that over the years August Investments made numerous efforts to find ways to expand the company and to take on new participants in its management and direction. But these were unsuccessful. The decision to voluntarily wind up the company was taken reluctantly, he said.
August Investments started in 1981 as a private investment company and was one of the first and perhaps the first private investment organisation in the world to use positive selection criteria for choosing investments. Mr Lynch said he got the idea from the Uniting Church which was using positive selection for social investments but not for environmental investments. Another influence was the permaculture advocate Bill Mollison who in 1981 inspired Mr Lynch and his group to form a company "to invest our own funds in activities we believe in," said Mr Lynch.
The unlisted company attracted interest and it was decided to set up a separate organisation with a public management company and unit trust. Directed Financial Management Ltd became August Investments Management Ltd and is now the listed Australian Ethical Investment Ltd. A private trust set up by August Investments was rolled over into the first public trust, August Investments Trust, which is now the Australian Ethical Balanced Trust.
August Investments continued separately as an unlisted investment company and while it had a strong environmentally positive and balanced portfolio approach, it remained modest in size. Recently it had net assets of just over $1.5 million.
It has paid regular dividends since its early days and its most recent dividend due this month has been increased from $7 per share fully franked to $20 fully franked. The increase is the start of the capital return process under which the company will wind down. In April its shares were valued at $304.89 each.
The 1981 shares were issued at $100 each and there was a small capital return a long time ago so the shares have shown a capital profit, albeit over a very long time. Mr Lynch said the company has paid dividends since its early days, and these have averaged 3.4 per cent per annum plus franking over the past 18 years. So shareholders are well ahead over the life of the company.
On life-of-company returns, Mr Lynch said it is relatively easy to get return figures back to 2000. "After that, it gets hard sad, as we had some yearly good returns prior to 2000. The 2000-2017 figures are dragged down by some bad results between 2008 and 2012, our worst five year period ever (as was noted at the time), but such is life."
For the 18 years from 2000 to 2017 August Investments made an accounting return of 5.39 per cent and 7.29 per cent including franking credits. Over the 18 years, it paid $138 per share in dividends with an average yield of 3.4 per cent. For the five years from 2013 to 2017 the return was 14.77 per cent and 16.45 per cent including franking credits.
The accounting returns are dividends plus realised and unrealised capital gains as reported in the annual accounts, without franking credits.
There is more to come. Mr Lynch said the wind up will initialy be with franked dividends until the franking credits are used up and then through returns of capital and cancelations of shares. He expects the process to conclude in the second half of 2019.
Looking back over the 37 years, Mr Lynch said the process started by August "pioneered in Australia what is now known as "ethical investment". This investment approach is now considered mainstream. We can be particularly proud that little August Investments was, as far as we know, the first organisation worldwide to develop a formal "positive" ethical investment charter. Bill Mollison inspired us to invest in sustainable activities. Prior to the formation of our company ethical investment was about NOT investing in harmful activities. Our charter has been copied and amended by many organisations. Its impact on the investment world cannot be measured.
"We have had an impact way beyond our size. As well as formalising positive ethical invest processes, we provided seed capital and/or managed other initiatives, including the now listed Australian Ethical Investment Ltd (formerly August Investment Finance Ltd), we managed community based revolving loan funds, including the Permaculture based Earthcare Fund and we established a sustainable forestry venture, EcoForest Ltd.
"While it is sad to see August Investments cease its operations, you can be proud of what has been achieved. All shareholders share the responsibility for these achievements."
Although ethical investing has come a long way during the time of August Investments, progress for environmentally positive investment has been much more modest. While there are now many ethical investment vehicles in Australia, there is a severe shortage of specialist environmental investment vehicles. Thus August Investments leaves a hole in the investment landscape. But the road has been laid out and the trend is in the right direction, so it can only be a matter of time before we have a new generation of environmentally positive investment companies and funds.
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