In 2015 we have delivered more than 300 investor profiles, analytical and research-driven pieces on the global institutional investment universe. The most popular investment stories have been about ESG integration, in particular CalPERS’ story on holding managers to account on ESG – a game changer for the industry – was well received. But asset owners have also liked stories on how to improve their internal structures, decision making and team cultures. Below is a recap of the 10 most popular stories for 2015.
In what promises to be a transformational moment for ESG integration and investment manager accountability, CalPERS will require all of its managers to identify and articulate ESG in their investment processes. CalPERS staff led by Anne Simpson, senior portfolio manager and director of global governance, presented the ESG manager expectations, and draft sustainable investment guidelines, to the investment committee this week. The $307 billion fund will factor into its decisions about hiring and monitoring external investment managers the degree to which managers assess ESG factors and integrate them into their process.
By 2018 AustralianSuper will be managing about A$50 billion ($38 billion) of assets in-house. Chief investment officer of the A$84 billion($64 billion) fund explains the logic behind the move.
A research paper that concludes that the funds recommended to institutional investors by investment consultant do not add value, has won the Commonfund Prize, awarded for original research relevant to endowment and foundation asset management. The paper, by academics at Saïd Business School, Oxford University and University of Connecticut School of Business, found that there is “no evidence that these recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless.”
Andrew Ang believes factor investing is a more efficient way to organise a portfolio as it allows liquid and illiquid strategies to be managed across the portfolio. It also has the added benefit of honing managers on value creation. He’s been working with a handful of investors while Professor of Finance at Columbia University on implementing factor investing, and the motivation to join Blackrock was the opportunity to springboard the practical implementation of these beliefs and transform the way assets are managed.
Governance experts say that paying competitive salaries for internal staff will have benefits across the entire fund. For some, including those working in public sector pension funds or profit-to-member funds, that is unpalatable. But a comparison of salaries and total investment costs, between two large, different and high profile funds – Ontario Teachers and CalPERS – has got me thinking about what value for members looks like.
Large funds outperform small funds mostly mainly due to the cost savings of internal management. So when does internal management make economic sense for a fund? It’s at a much lower AUM than you might think.
CEM Benchmarking analysed a universe of 186 pension funds globally. That universe is split into four groupings: 77 funds with an average of £1 billion, 56 with an average of £10 billion, 30 with an average of £20 billion and 23 with an average of £50 billion.
The decision by the Stanford University endowment to divest from coal stocks might produce some positive PR, but from an investment perspective it’s only making them worse off, says Andrew Ang, professor of finance at Columbia University, who says the move prompts the bigger question of what the purpose of a university endowment actually is.
A highlight of the Fiduciary Investors Symposium at Chicago Booth School of Business was an intimate Q&A session with the “Father of Modern Finance” and Nobel Laureate, Eugene F. Fama.
Fama, who is the Robert R. McCormick Distinguished Service Professor of Finance at the Chicago Booth School of Business, believes that because markets are efficient, investors should not pay to try and beat the market. He’s surprised that the industry has not adopted passive management more than it has, despite 50 years of data evidence.
2015 is poised to be the turning point as a number of key issues relating to environmental, social and governance (ESG) issues take centre stage says Fiona Reynolds, managing director of the Principles for Responsible Investment.
Asset owners, on average, add 15 basis points of value above their asset class benchmarks after fees, according to an extensive study by CEM Benchmarking.
The survey, which measured 6,666 data points from a global set of defined benefit plans, and some sovereign wealth funds and buffer funds, from 1992-2013.
Gross of investment fees, funds deliver 58 basis points of value added.
The study highlights why costs continue to remain a key concern for funds, with the author of the report, Alex Beath, finding that 75 per cent of that value added by funds is eaten by investment fees.The net amount of value add on average is 15 basis points.
Thanks for another great year. In 2016 you can be assured we will not only maintain, but hone, our fierce passion and dedication to advancing institutional investment best practice and will continue to tackle the issues we believe the industry needs to overcome to operate efficiently and serve its various constituents fairly and justly – particularly the workers whose money they manage.
We aim to courageously challenge the industry on fees and value, investment transparency and complexity; governance, agency problems, decision making and organisational change; and importantly, ethics, integrity and systemic risks.