Howard Carter: When companies have to be challenged, the Isis man cometh for investors

The chief of the fund manager tells Abigail Townsend how he mixes profits with ethical screening and corporate 'activism'

Howard Carter, the chief executive of Isis Asset Management, is the exact opposite of just about every City caricature out there. He's not flash, would look out of place in a lap dancing bar and only plays golf now and then.

Howard Carter, the chief executive of Isis Asset Management, is the exact opposite of just about every City caricature out there. He's not flash, would look out of place in a lap dancing bar and only plays golf now and then.

A measured-speaking Yorkshireman, he appears instead to prefer the quiet life. He keeps fit, time permitting. He's a family man, though his two daughters are grown up. He's a Leeds United fan, but he is not dwelling on his team's relegation and concedes he doesn't see them play much anyway. Hardly your average go-getting City lifestyle.

Yet who do you want looking after your money - the stereotype suit or Carter? He is also part and parcel of the image Isis strives to convey - one that, on many levels, is in opposition to all that is perceived to be wrong with the City. The firm was the first to move into socially responsible investment when, 20 years ago this month, it launched the Stewardship fund. Its formation was tied to the religious roots of Friends Provident: the former mutual, which owns around 67 per cent of Isis, was founded by Quakers in 1832. Stocks to be avoided include those with links to pornography, tobacco and alcohol.

Over the years the fund has grown in popularity and is now worth more than £500m. Sister funds take the value of the Stewardship range of products to £1.4bn.

"As society becomes more sophisticated, people get wealthy," says Carter of the fund's endurance and growing popularity. "Yes, they are interested in their financial assets but they are also becoming more concerned. People are focusing on the impact of their activities.

"It wasn't great [at first]. We were tapping into the committed few. There's not been a massive surge. It's just built over time and certainly in recent years it's started to build significantly. People are now more inclined to vote with their money."

The fund remains true to its roots and retains a narrow remit. It is unable to invest in around 75 per cent of the FTSE 100 by market value and can invest in just one top 10 stock, Vodafone. It does not hold stakes in the majority of banks, because of where they invest their money, nor drug companies, meaning most of the biggest blue chips are off limits.

Oil companies are permitted, because, as Carter says: "The world would get by without cigarette companies - well, the odd person wouldn't - but it wouldn't without oil." But they are closely scrutinised. Shell is banned because of its interests in Nigeria but minnow Cairn Energy, with its focus on India, is allowed.

Not all Isis funds are like Stewardship, and many have no restrictions. Yet the firm maintains a policy of active engagement and strict adherence to corporate governance best practice. "It's about using your power as an owner to challenge and influence change," says Carter. "Most companies are open and prepared to talk. Looking after your brand is important and bad publicity, in whatever form, is never welcome."

And even if they don't like it, lump it - times have changed. "At one point, institutional investors, if they didn't like what was going on, would just sell the shares and move on. So company management had a pretty easy time of it," argues Carter. "Our clients want us to get more involved and companies have to accept the world has changed."

A recent survey named Isis as the most activist fund manager, opposing 57 per cent of votes on company share option proposals during the last quarter of 2003. It has fought pay rises at GlaxoSmithKline, the appointment of James Murdoch at BSkyB, has long been critical of Shell's board structure and was involved in the recent disquiet over Piers Morgan's editorship of the Daily Mirror.

Carter himself, as is to be expected from such a responsible firm, is on a one-year rolling contract. He was paid £797,000 last year, including a £450,000 bonus, in a 55 per cent hike on the previous year. He points out, however, that Isis has no issues with rewarding success, just failure.

Carter did not start his career in the City but the more civilised world of academia. "The best way to learn is to teach - studying is just about passing exams," he says. "But we also have to think about what comes next in life. I got the learning done and thought that there were other things I wanted to do."

He is pleased with his switch to the cut and thrust of City life - "once you've worked in that, it's hard to go back to more narrow jobs" - but this does not stop him criticising his own industry. "It's important we engage with our customers and explain how investments work and what the risks are. As an industry, we haven't done enough of that. We have just focused on performance when markets are doing really well. We need more responsibility for investment dangers.

"It's not about short-term gains, and we need to educate clients more. We also need to develop products that suit their needs, and even sometimes to put them off investing."

Yet even with such shining morals, Carter is no puritan. He knows Isis cannot sit on its laurels in a crowded market, nor offer a narrow range of products.

The firm was formed in 2002 via the merger of Friends Ivory Sime with Royal & SunAlliance Investments and had total funds under management, at the end of 2003, of £63.5bn. It recently announced plans to spend £5m on a 15 per cent stake in hedge fund business Cardinal Partners. Carter is now keen to build on that, expanding the group both organically and by acquisition.

"What we need is good investment performance, good client service, a good range of products, distribution opportunities, financial strength. If you get all of those things, you should do well."

Carter may not be a traditional City suit, but he would be underestimated at cost. He believes deeply in the merits of responsible investment, be it through ethical funds or shareholder activism. More than that, however, he believes in making it commercially viable.

That is where his passions lie - and it is not something the 52-year-old will let go. As he says: "The older you become, the less you think about retiring. You realise that what excites you in life is what you do and you don't want to give that up. As long as I'm successful and get that enjoyment, I will keep going."

BIOGRAPHY

Born: 1951.

Education: graduated from University of East Anglia with a BA and MA in economics.

Career:

1974: first job - economics lecturer at Leeds Polytechnic.

1981: senior economist at stockbroker Montagu Loebl Stanley.

1982: senior economist at stockbroker Buckmaster & Moore.

1984: chief economist and director of UK government bond department, Prudential Bache.

1988: head of fixed interest and economics, Friends Provident.

1998: chief investment officer, Friends Ivory & Sime.

2000: chief executive, Friends Ivory & Sime.

2000 - present: executive director, Friends Provident.

2002 - present: chief executive, Isis Asset Management.