In his first interview since becoming CIO, Michael Wissell tells Sarah Rundell about the plans for developing HOOPP’s portfolio, which includes a focus on climate change, inflation and innovation while always keeping an eye on the total portfolio.

The Healthcare of Ontario Pension Plan, HOOPP, the C$104 billion ($82 billion) plan for Ontario’s hospital and community-based healthcare sector is in the process of developing a new sleeve to its equity portfolio that will have less exposure to the negative consequences of climate change – and more to the energy transition.

It reflects the fund’s ongoing shift to explore how best to build sustainability into its policy portfolio in a change that new CIO Michael Wissell says reflects the type of innovation he wants to guide the fund in the years ahead.

“We continue to build our sustainable program in various ways and are excited to be going down this road.”

Stocks will be individually selected by the public equities team and HOOPP has already developed an internal benchmark. The fund is also working with service providers to help make the selections and may partner with external funds.

“We haven’t decided at this point,” Wissell, who took over the helm last month following three years heading up the capital markets and total portfolio division, says.

The move into climate opportunities chimes with HOOPP’s guiding mantra to identify risk and act before it transpires, a characteristic Wissell believes is the bedrock to the fund’s enduring success, encapsulated in 10-year 11 per cent returns. For example, wary of the risk to its liabilities from the possibility of a long period of very low interest rates, HOOPP built out an LDI strategy in 2007. Identifying the importance of liquidity and the risk of not having enough, ensured ample dry powder to take advantage of low asset prices in March 2020.

As for today, he’s not just readying the fund for “one of the greatest transitions in human history.” Inflation, now more of an issue than at any point in his 30-year career, is also front of mind.

Preparing for inflation

Preparing for inflation, and the risk rising prices poses to HOOPP’s large fixed-income allocation is driving current strategy to scale back the liability matching portfolio and reassess what has been a key part of the fund’s investment thesis for the past 15 years. (See Amanda White’s podcast interview with Jeff Wendling Liability-driven investing 2.0)

“We’ve taken that portfolio down and it is now as small as it has been in a very long time.”

Rather than have a fixed target or notional amount, the reduction is managed relative to HOOPP’s liabilities. The portfolio still includes a large position in index-linked bonds that have outperformed, plus exposure to breakevens that Wissell says has served the fund well.

Still, having less nominals on board is now key. Canadian CPI is running higher than it has for some time and a risk that the fund has always been cognisant of has moved centre stage.

“We have a core view in terms of things that might happen and around which we then prepare accordingly. In this conversation, you have to bring up inflation.”

Reducing the allocation to fixed income to better manage the risk of inflation comes alongside building out the infrastructure allocation. Despite the competition for assets, Wissell says HOOPP is “seeing a lot of interesting opportunities” and the new portfolio is growing “quicker” than thought.

Private assets

Away from inflation, other priorities including continuing to grow HOOPP’s allocations to private assets, where he says an increasing focus will be direct deals. The fund is already a renowned investor in real estate and areas like logistics, and has much dry powder to deploy. As it increases its allocation to private assets – via both new investments as well as re-deploying capital coming off investments made years ago – he doesn’t anticipate a shake-up in GP relationships.

“We feel we have it right; we are not growing our GPs.”

That said, new people bought into the team (HOOPP is currently looking for a new head of private equity) will of course bring new relationships and the fund is growing its GP relationships in infrastructure.

“Some of our peer plans don’t use GPs here but we feel they have a role to play and we are going to continue to do so.”

Despite the equity diversification benefits of investing in China and other emerging markets he questions if the risk is currently rewarded enough: HOOPP’s modest exposure compared to peer plans fits for now.

“We are looking for opportunities, but only when returns are commensurate with risk will we add [more Chinese investment] across our investment platform.”

The push into more private assets means materially boosting HOOPP’s headcount in an expansion that will also require a degree of innovation. Safeguarding the fund’s culture and the elements that have made the fund so successful all the while acting quickly enough to ensure the investment team can avail itself of the opportunities out there requires careful choreography.

A challenge encapsulated in how best to practically house the growing investment team – targeting a January 2022 return to office – but keep the ideas and creativity born from a tight knit group alive.

“As of today, the entire investment management team has sat on one floor which has had real benefits around culture and ideas. Now we are growing, this is not going to be possible anymore,” Wissell says.

The new CIO concludes by outlining his other key priority as he takes the helm. Alongside innovation and identifying risk before it transpires, his focus will be on the total fund: what the plan does in aggregate and the absolute level of return matters most.

“You can focus on the value added, but you must never lose sight of the actual plan return as well. For example, having a total plan return of -5 per cent although you made 1 per cent is not a good outcome.”

The $1.23 trillion Norwegian sovereign wealth fund celebrates 25 years of investing in fixed income. Sarah Rundell looks at some of the highs and lows of its fixed income portfolio which makes up around 30 per cent of fund.

What began as a tiny NOK2 billion ($0.23 billion) allocation spun out of the Norwegian Central Bank’s management of foreign exchange reserves 25 years ago invested mostly in liquid, short duration German Bunds, has grown into a global NOK2,925 billion ($334 billion) portfolio. Still, the task of fixed income in Norway’s giant sovereign wealth fund remains the same: reduce return fluctuations, meet liquidity needs and reap bond market risk premiums.

The allocation (currently around 30 per cent of the entire $1.37 trillion portfolio) has weathered the financial crisis and the European sovereign debt crisis, negative rates and exceptional monetary policy that has helped create a current environment of risk reward very much skewed to risk.

In a recent paper, asset manager Norges Bank Investment Management’s (NBIM) fixed income team reflects on a dynamic, active strategy over an extraordinary two decades that has come to fruition with its most stellar results in the last five years. Between 2016 to 2020 the relative performance for internal fixed-income management was 45 billion kroner ($5.1 billion), the most successful period for the allocation in the history of the fund. Returns since inception are around 86 billion kroner ($9.8 billion)

Steep learning curve

Today’s success is a culmination of years of hard-won experience. Up until the end of 1997, the fund was managed in line with Norway’s long-term foreign exchange reserves with the bulk invested in European government bonds: active management of currency and interest rate risk was deemed inappropriate for a central bank and index management was front and centre. By the time the fund’s current head of global fixed income, Asgeir Haugland, joined NBIM in autumn 2002 as an assistant portfolio manager, strategy had evolved to a handful of independent portfolio managers running enhanced indexing strategies in search of alpha with an absolute return focus. They were part of a front office made up of around 20 people he recalls, speaking in a webinar accompanying the report.

A strategy and team ill prepared for the turmoil lying in wait.

“The losses in 2007 and 2008 were unforeseen” says Haugland who describes “hard” and “long days” at the peak of the GFC. Advanced indexing strategies suddenly began to correlate with the wider market bringing large performance swings and uncertainty.

“During the financial crisis we discovered common factors to much of our risk taking. There was nowhere to hide,” he says, adding that hitherto reliance on tracking errors and historical correlations “wasn’t enough.”

Come 2009 NBIM had begun to sell down its fixed income allocation, purchasing equities at attractive valuations and ending fixed income’s reign as the largest asset class in the portfolio. Strategy shifted to reducing the use of leverage and the fund recovered mark to-market losses from legacy assets. The allocation was in better shape to capture opportunities in the next crisis: turmoil in European sovereign debt.

The GFC triggered other key strategy shifts over the ensuing years. Since 2002 the role of external managers had grown as the fund outsourced strategic exposure to mortgage-backed securities in the US. Poor manager performance going into and during the GFC led to external management being phased out.

“We realised that external mandates also required internal management of that same segment; we needed the capacity to take assets back home if necessary,” says Haugland.

The fund’s growing internal focus got another boost in the next, seismic shift. NBIM set up a fixed income trading operation, creating a new division of labour that allowed portfolio managers to focus on long-term portfolio construction and traders on short-term timing and sourcing liquidity in the market.

Cue the start of a trading prowess that proved its worth during 2020 COVID induced market turmoil when even US Treasuries, the bedrock of the global financial system, became illiquid and difficult to trade. The most hectic period of turnover in the history of the fixed income allocation was underway as the government began to finance its fiscal response to Covid-19. Elsewhere, market dislocations provided relative value opportunities while governments’ scramble for liquidity and huge issuance programmes added to the largesse: offering issuers liquidity by purchasing new bonds in syndication processes was an attractive investment strategy, especially in the Euro area.

The future

Today NBIM’s team comprises 25 portfolio managers, 10 analysts and 15 traders across different time zones invested across geographies, currencies, sectors and types of issuers – all overseen by specialist teams including increasingly expert trading and credit analysis. A uniform incentive structure is based on the portfolio performance achieved by the entire team with team members with less responsibility specifically encouraged to voice their opinions and challenge views and market outlooks to avoid groupthink.

Looking to the future, Haugland believes the segmented nature of fixed income will continue to offer opportunities for NBIM’s active specialists, doing something different to the other big fixed income players. Central Banks remain the most dominant, buying bonds in line with monetary policy rather than any risk reward analysis. Elsewhere, large passive fixed income investors plus those seeking to match their liabilities dominate.

“There are opportunities for us because we are more active and we know how these passive fund managers work,” he concludes.

This session drew on themes of the conference and discuss with asset owners what the portfolios of the future will look like, particularly examining how investors plan to build robust portfolios to meet changing investment regimes.

Speaker

Dan Bienvenue assumed the role of interim chief investment officer in August 2020.
He oversees an investment office of nearly 400 employees and manages investment portfolios of roughly $400 billion, including the Public Employees’ Retirement Fund and affiliate funds.
As deputy chief investment officer, Dan oversees total fund investment and operational strategies and collaborates with the managing investment directors and their teams to implement asset allocation and investment strategies. He also oversees the investment office’s business management needs, including strategic planning, financial reporting, expense management, and talent management.

He joined CalPERS in September 2004. During his tenure he has held several leadership roles with the investment office, including concurrent roles as the interim chief operating investment officer and managing investment director of global equity. He served as the managing investment director overseeing global equity from 2014-20, and as senior portfolio manager in internal equity.

Prior to CalPERS, Bienvenue was a principal and senior portfolio manager with Barclays Global Investors (BGI), leading an international equity portfolio management team responsible for $55 billion across developed and emerging markets. Before BGI, his work experience includes sales and trading in the analyst program with J.P. Morgan Securities in New York.
He graduated Phi Beta Kappa with a bachelor’s degree in economics, cum laude, from the University of California, Davis, where he was an Academic All-American in wrestling. He also holds both the CFA and CAIA charters.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of www.top1000funds.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

This session explored how the private credit market has evolved, what it’s role in broad fixed income portfolios will be in the future and what return premium investors should expect as they move further out the risk spectrum.

Speaker

Prior to joining SVP, Ranji Nagaswami was most recently chief executive and board director at Hirtle Callaghan & Co., a $20 billion+ outsourced chief investment officer platform serving endowments, foundations and ultra-high net worth families. She has held various leadership roles throughout her career, including as chief investment advisor to Mayor Bloomberg and the City of New York and at AllianceBernstein where she rose over 10 years to serve as chief investment officer of the multi-asset and retail investment businesses. She started her career at UBS, where she became a co-head of the US fixed income division.

Nagaswami has served as trustee and member of several boards and investment committees, including the Yale University investment committee, UAW VEBA investment advisory council, and the Curtis Institute investment committee. She is a Henry Crown Fellow at the Aspen Institute and also the founder and lead moderator of the Aspen Finance Leaders Fellowship program, designed to create a global network of enlightened leaders that use finance to advance society.

She graduated from Mumbai University with a Bachelors of Commerce, received her MBA from Yale University and is a Chartered Financial Analyst.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of www.top1000funds.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

Poll results

To follow

In the next 12 months are you going to allocate/add to

This session examined what the world will look with an energy system dominated by wind and solar and specifically examine the implications on energy system pricing, access and risks for consumers and investors. 

Speaker

Alex joined Octopus in 2015 as the co-head of Octopus Renewables to help develop the energy strategy, originate and structure investments in new areas and to widen investor relationships. Brierley manages Octopus Renewable’s private institutional funds which serve a number of large pension and insurance company investors.

Prior to joining Octopus, he was director in the energy and environmental infrastructure team at EY LLP where he provided a wide range of corporate and project finance services to leading players in the renewable energy industry. Brierley is a member of the Institute of Chartered Accountants of Scotland, qualifying in 2003.

Richard Howard is Aurora’s research director and is responsible for managing and developing Aurora’s suite of market intelligence services across European power markets, renewables, flexible and distributed energy, and global commodities.

Before joining Aurora he was a director and head of energy and environment at policy exchange, where he authored a number of influential reports on energy and environmental policy and regulation. Prior to that he was the chief economist at The Crown Estate.

Richard has a first class Degree in Economics and an MSc in Environmental Policy.

Investor Response

Michael Cappucci is the senior vice president for compliance and sustainable investing of Harvard Management Company (HMC). He joined HMC in 2012.
Michael helps to manage HMC’s sustainable investment program, where he focuses on integrating ESG factors in HMC’s private fund investments. He is also part of the compliance group that supports HMC’s investment activities. In this capacity, he has extensive expertise in the structuring and implementation of various investment strategies, including private fund investments, separately managed accounts, complex derivatives, and listed equity.
He has written on the topics of sustainable investing, regulatory reform, and teamwork, and his article on ESG integration has been featured in the Journal of Applied Corporate Finance, Responsible Investor, and the Harvard Law School Forum on Corporate Governance. He is a member of the United Nations Principles for Responsible Investment Hedge Fund Advisory Committee and Private Equity Advisory Committee.
Prior to joining HMC, Michael served in the Fidelity Investments legal department, and as an associate in the private funds group at Ropes & Gray LLP. Michael holds a J.D. from the University of Virginia School of Law and a B.A. in philosophy from Tufts University.

Before joining Aurora he was a director and head of energy and environment at policy exchange, where he authored a number of influential reports on energy and environmental policy and regulation. Prior to that he was the chief economist at The Crown Estate.

Richard has a first class Degree in Economics and an MSc in Environmental Policy.

Moderator

Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was established in 2005, and is headquartered in Sydney, Australia.

The company hosts more than 20 conferences and events globally each year and publishes three digital publications, including the global website and strategy newsletter for global institutional investors Top1000Funds.com, Professional Planner for financial planners, accountants and private bankers in Australia and Investment Magazine for Australian superfunds and institutional investors. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium attended by global asset owners and hosted in the Americas and Europe.

Conexus Financial’s events aim to place the responsibilities of investors in wider societal and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes.

Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project. In 2021 was appointed as a Member (AM) of the Order of Australia (General Division) for significant service to the community through charitable initiatives.

The next phase for private credit markets

The resilience and adaptability of the asset class during the ongoing pandemic has helped to cement private credit’s permanence in the minds of strategic asset allocators. In this paper, M&G Investments reflects on the changed, and changing, landscape for private credit investing, and offer a perspective on the multi-faceted role private credit could have in helping to finance the post-pandemic recovery, and support many of the changes the world needs over the longer term. The paper also focuses on some of the key themes influencing private credit today and discusses what the coming five to ten-years could have in store for the growth and development of the diverse and dynamic private credit markets and what this could mean for investors.

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