Sustainable Investing at Generation Investment Management

Sustainable Investing at Generation Investment Management

By
Stefan Reichelstein, Donna Bebb
2016|Case No.SM257| Length 21 pgs.

In 2015, Generation Investment Management celebrated the successful 10-year track record of its flagship Global Equity Fund, which outperformed its benchmark index by over 500 basis points per year. A mainstream investment firm whose founders included former United States Vice President Al Gore and former head of Goldman Sachs Asset Management David Blood, Generation integrated qualitative sustainability factors such as environmental, social, and governance issues with traditional financial equity analysis. Along the way, Generation proved to skeptics that it was capable of building a mission-driven investment firm that prioritized returns and delivered superior results.

Generation faced a significant challenge to its long-term investment focus during the global financial crisis in 2008. One of its largest holdings, the Irish industrial panel manufacturer Kingspan Group, saw its equity price drop almost 65 percent in one year. Confronted with this precipitous drop, the Global Equity Fund team decided that it needed to revisit its analytical process and question what, if anything, it had missed.

This case provides an overview of Generation’s philosophy, culture, and organizational structure. It includes an in-depth look at the Global Equity Fund’s qualitative and quantitative investment process that utilizes the Kingspan Group investment as an example. Optional Excel spreadsheets are available to enable students to analyze Generation’s valuation methodology in greater detail.

Learning Objective

Students will explore how investment firms can achieve superior performance by considering sustainability and other qualitative factors as an integral part of the investment process. Students will also examine the concept of sustainable capitalism as a potential competitive advantage and how organizational structure and culture contribute to long-term investment success.

This material is available for download by current Stanford GSB students, faculty, and staff, as well as Stanford GSB alumni. For inquiries, contact the Case Writing Office.