CalPERS, the US’s largest public pension fund with about $236 billion in market assets, now owns stock in only eight companies in Sudan and Iran, down from 47 companies five years ago. The amount invested has, accordingly, fallen from $2 billion to $160 million.

This sell-off has been in line with California’s divestment Acts, with Rob Feckner, CalPERS’ board president, saying the fund also would not make any new investments in the countries.

“The cost of continuing to hold the stock of these eight companies is greater than the value of divesting them,” he said.

Strong sanctions adopted last year by the US federal government, the UN and the EU prompted the withdrawal of several large multinational oil and energy companies from Sudan and Iran.

The 12 signatories, including CalPERS, to the Sudan Engagement Group (SEG) statement diplomatically urged oil companies such as CNPC/PetroChina, Sinopec, ONGC, and Petronas to do more “to address risks and opportunities associated with operating in Sudan”.

The statement congratulated companies such as Schlumberger, Total and Petrofac for their “balanced focus on economic purpose and social development in the region that, in the long run, should lead to greater benefits for all concerned”.

Shareowners could be a force for peace, said Doug Pearce, CEO/CIO of the British Columbia Investment Management Corporation (BC IMC), one of the members of the Sudan Engagement Group and a signatory to the statement.

“Shareowners can be instrumental in using our investment capital to be a positive force for human rights, community development and economic growth in Sudan,” he said.

The SEG statement was signed by 12 investors with $2.7 trillion in assets under management: APG, Aviva Investors, BCIMC, CalPERS, Hermes Equity Ownership Services, Local Authority Pension Fund Forum, Mn Services, New Zealand Superannuation Fund, PGGM Investments, Robeco, The Co-operative Asset Management, and Universities Superannuation Scheme.

In a statement, the Beijing Communiqué,  issued after the forum ended, the secretariat said delegates “felt strongly that the Santiago Principles remain a valid, robust, and transparent framework for SWF investing and urged recipient countries to utilise the Principles to maintain openness towards foreign investment, and guard against discrimination of SWFs compared to other institutional investors”.

In his address to the forum, Li Keqiang, vice-premier, State Council of the People’s Republic of China, said the world was undergoing major adjustment and transformation. “It is important to promote global economic recovery and prosperity by addressing the uneven development in the north and south countries,” he said.

Lou Jiwei, chairman and CEO of the CIC, urged the forum to work together and with other countries to promote a non-discriminatory investment environment for SWFs while continuously contributing to the recovery of the global economy and financial stability. The group was also addressed by Zhou Xiaochuan, governor, People’s Bank of China.

Delegates reaffirmed the importance of the forum for better understanding of the Santiago Principles and SWF activities during the post-crisis phase. The forum agreed to a permanent secretariat funded by members, and this would be based at the International Monetary Fund for a transitory period.

Next year’s forum will be in Mexico in May, and the 2013 meeting will be in Oslo, Norway.

The latest, All the Devils Are Here, by Bethany McLean and Joe Nocera, features in a ‘financial crisis book map’ on the contrarian investor Can Turtles Fly? Blog, an eclectic blog chronicling a slow-moving turtle’s attempt at gaining financial independence.

Click here to view the full map

Ingo Walter, Professor at Stern School of Business and director of SimCorp StrategyLab, says demographic changes “will pose both challenges and opportunities to all sectors within investment management”.

“In the next 10-20 years, many parts of the investment management industry will have to be restructured in order to meet the demands posed by the growing retiring population. The companies best prepared to handle the challenges and, in particular, take advantage of the opportunities are likely to become the future winners,” he says.

“The pensions industry, for instance, will be required to provide very high returns as well as stable cashflows while simultaneously being able to manage risk better; and the fund industry will be met with a growing demand for products suited for investing people’s retirement savings.”

Speaking at the SimCorp StrategyLab in Copenhagen, Walter went on to say that demographic changes are key to the future of the global investment management industry.

As part of its 2011-12 research program, SimCorp StrategyLab gathered three executive research groups in Copenhagen. The research groups consisted of academics and high-level industry representatives, who convened to discuss challenges and recommendations for the fund industry, the asset management industry, and the pension and insurance industries.

The results of the meeting as well as recommendations for how to meet the challenges faced by the global investment management industry will be elaborated on and published in three sector-specific white papers in September.

Hosted by the China Investment Corporation, the forum runs for three days from Wednesday, May 11.

The forum will begin with a consideration of the use and application of the Santiago Principles, and then the forum will hear from the first of the IFSWF’s three sub-committees.

This first group is led by Azerbaijan, and consists of Botswana, Chile, China, Kuwait, Norway, and New Zealand.

The next session on risk and investment management will hear from the forum’s second sub-committee led by Kuwait, and consisting of Alaska, Alberta, China, Korea, and New Zealand.

The forum’s case studies will focus on:

• accounting for “fat tails” in portfolio risk management
• managing currency exposures of financial and non-financial assets, and
• constructing portfolios for specific macroeconomic environments.

The global investment climate and recipient country relationships will be presented by the third sub-committee led by Australia, and consisting of Abu Dhabi, China, Mexico, Qatar, Russia, and Singapore.

Financial stability and the current state of the global macro economy is the first topic for the second day of the forum, followed by an examination of the impact of the global financial crisis on SWFs and other institutional investors, and its implications for long-term investment strategy.

Other sessions include regulatory reforms, investment regimes and the outlook for institutional investors from both the views of investors and recipients.

The final sessions focus on China:

• its economy and capital markets
• as a recipient country: opportunities and challenges, and
• overseas investment: its role in fostering sustainable global development

The first SWF forum was in Kuwait in April 2009, and the second was in Sydney, Australia, in May last year.

The team of five (pictured) from Italy’s Politecnico di Milano were all studying for the Master of Science in Management, Economics and Industrial Engineering, and took part in the fifth annual competition which took place over a year.

Team leader Nicolo Rolando said the competition was a “long and tough experience” and had been the team’s “top priority” for the past five months. “The result has been well worth it,” he said, “and we’ve learned a lot. We’ve also realised that there is still much more to be learned.”

The other team members were Anna Belli, Francesca Maria Claudio, Giacomo Saibene and Stefano Vigano. Their winning entry was a report on Piaggio & C SpA (PIA:IM) to a panel of industry experts.

The Piaggio Group manufactures scooters, mopeds and motorcycles from 50 to 1,200 cc marketed under the Piaggio, Vespa, Gilera, Aprilia, Moto Guzzi, Derbi and Scarabeo brands. The group also operates in the three- and four-wheeled light transport sector with its Ape, Porter and Quargo ranges of commercial vehicles.

Over the year of the challenge, more than 100 CFA Institute member societies worldwide hosted local competitions in which students had to analyse public companies while being mentored by professional research analysts, write research reports, and then present – and defend – their reports and recommendations to a high-profile panel of experts.

IOSCO has approved a new structure and funding so it can continue to “provide the lead in the development of regulatory standards for capital markets”, said Jane Diplock, chair of IOSCO’s executive committee.

The funding changes were to ensure that IOSCO had the resources to identify emerging securities markets risks and could respond to requests for targeted work by the G20 and the Financial Stability Board.

After last week’s IOSCO conference in Cape Town, Diplock said that securities markets did not “as many market participants once fondly believed” regulate themselves. “Regulation must play its part – regulation that aims at sustaining the financial system and preventing individuals and businesses from exploiting and weakening it, even bringing it to its knees.”

She said IOSCO was now recognised as the standard setter for securities markets regulation by the G20 and international financial institutions.

The decision to re-structure and re-fund ensured that IOSCO could meet those challenges.

Diplock said that the power of IOSCO’s Objectives and Principles for Securities Regulation were in the fact that they were internationally agreed and nationally applicable. “Unlike some other global multilateral efforts which have stalled,” she said, “IOSCO has made significant progress in global standard-setting.

“This is why the G20 has mandated full implementation of the IOSCO Principles in every G20 country and encouraged their use in all others.”

Diplock pointed to what she called IOSCO’s other success story: the development and implementation of a global protocol, the IOSCO MoU, for the exchange of information needed to police and sanction market misconduct.

Of the 122 member regulators, 80 now fully meet the MoU’s requirements and were “engaged in combating fraudulent market activity and its consequences for investors”, Diplock said.

Diplock, who is chair of the soon-to-be-disbanded New Zealand Securities Commission, will stand down this week after 10 years at the NZSC. The irony is that, during this position, she was nicknamed Plane Jane due to the amount of time she spent overseas as the executive chairman of IOSCO.

The New Zealand Shareholders’ Association said the country’s securities commission had failed.The association’s chairman, John Hawkins, described the regulator as a “late-arriving ambulance at the bottom of the cliff”.

Hawkins doubted that Diplock achieved the two main tasks of setting “boundaries of acceptable behaviour in the market” and enforcing the rules.

Dr Paul Woolley and Dr Dimitri Vayanos, are proposing a rational theory of momentum and reversal based on delegated portfolio management.

In research done for the Paul Woolley Centre for the Study of Capital Market Dysfunctionality, Woolley and Vayanos turn the standard asset-pricing paradigm on its head.

“Momentum and reversal are viewed as anomalies because they are hard to explain within the standard asset-pricing paradigm with rational agents and frictionless markets,” they say. Widespread explanations of these occurrences are behavioural, and assume that agents react incorrectly to information signals.

Woolley and Vayanos’ research shows that momentum and reversal “can arise in markets with rational agents”, and they abandon the standard paradigm by assuming that investors delegate the management of their portfolios to financial institutions, such as mutual funds and hedge funds.

Writing on “An Institutional Theory of Momentum and Reversal”, Woolley and Vayanos propose a rational theory say flows between investment funds are triggered by changes in fund managers’ efficiency, which investors see directly or infer from past performance.

“Momentum arises if fund flows exhibit inertia, and because rational prices do not fully adjust to reflect future flows,” they say. “Reversal arises because flows push prices away from fundamental values.”

Besides momentum and reversal, fund flows generate co-movement, lead-lag effects and amplification, with all effects being larger for assets with high idiosyncratic risk, while managers’ concern with commercial risk can make prices more volatile.

Ironically, managers’ efforts to protect themselves against commercial risk can have the perverse effect of making prices more volatile, and increase co-movement.

Woolley and Vayanos address the asset-pricing effect of commercial-risk management, that is of actions that managers can take to protect themselves against the risk of experiencing outflows.

“A manager concerned with commercial risk is reluctant to deviate from the market index,” they say. “The intuition in the case of asymmetric information is that a deviation subjects the manager to the risk of underperforming, relative to the market index and experiencing outflows.”

Commercial-risk concerns thus lower the prices of stocks that the active fund overweights, and raise those of underweighted stocks.

The investment would be the first for the fund’s newly‐established CMBS portfolio managed by Colonial First State Global Asset Management. To date, UniSuper currently had invested more than $29.6 billion for more than 420,000 current and former higher education and research employees.

The not‐for‐profit superannuation fund would invest in CMBSs issued by Charter Hall Retail REIT (ASX:CHC), a listed real estate investment trust investing in predominantly grocery‐anchored shopping centres worldwide.

UniSuper’s chief investment officer, John Pearce, said this transaction had significant benefits for members. The fund’s scale allowed it to access investment opportunities with attractive terms that many competitors were unable to provide for their members.

“Given our experience, investment strategy and horizon, UniSuper is well placed to capitalise on investment opportunities such as this and we remain open to investing in similar opportunities in future.”

Charter Hall Retail REIT’s chief executive officer, Steven Sewell, welcomed the relationship with UniSuper as a new major institutional grade source of debt funding for the REIT.

The existing CMBS facility would be refinanced by a placement of notes for a four‐year term to September 2015. Other key terms of the AAA‐rated note included a margin of 1.80 per cent over the benchmark interest rate (BBSW) and $264 million facility limit. The new facility would be backed by a large collateral pool of sub‐regional shopping centres and freestanding supermarkets valued at over $779 million, representing a loan‐to‐value ratio of 33.9 per cent.

The transaction remained subject to completing documentation and rating agency confirmation of the AAA credit rating on the notes.

The 2011 Consultant Search Forecast by eVestment Alliance and Casey, Quirk & Associates shows that more than 80 per cent of investment consultants expect to look outside the US, according to the eVestment and Casey Quirk survey, the fifth of its kind.

The survey, ‘Old Wine in New Bottles’, questioned 55 investment consultants in the US and Canada, with a total of $10.4 trillion in assets under advisement.

The main trends were continuing globalisation of portfolios; a growth in alternative investments such as hedge funds, private equity and real estate; and more emphasis on outcome-oriented portfolios built by risk budgeting and return attribution.

Heath Wilson (pictured), eVestment principal and founder, said sluggish growth in searches was expected because many investors were still emerging from the policy rebalancing done in the late 2009 and 2010.

Casey Quirk partner, Yariv Itah, said that one of the most interesting findings in this fifth survey was the increasing interest in private equity and real assets. “Institutional investors increasingly manage towards outcomes rather than just excess return, and they want asset managers who can use illiquid investments to mitigate inflation risk and manager liabilities.”

Other findings of the survey included:

• consultants expect significant increases in private equity and real estate mandates this year
• half those surveyed expect institutional interest in inflation-hedging strategies to rise
• three-fifths of consultants expect moderate or strong bond search activity
• more than one-third of consultants expect more emerging markets equity and less international developed markets activity for the rest of 2011
• more than one-third of consultants anticipate more liability-driven investing mandates, and
• more than half of US equity, US bond and EAFE searches will involve manager replacements this year