Leading asset owners have urged peers to remain cool-headed in volatile markets, warning against making big, risky bets when no one can really predict how policy uncertainties like tariffs will eventually play out. 

Michael Trotsky, chief investment officer of the $100 billion US public pension fund MassPRIM, said global markets have a long history of “the kind of chaos we’re going through”. 

The history of tariffs in the US can be traced as far back as the Early National Period when the first Treasury Secretary, Alexander Hamilton, used them to pay the federal government’s operating expenses and to redeem debts.   

“We at PRIM don’t…believe at all in tactical asset allocation, but we do believe in sticking to a strategic asset allocation,” Trotsky told the Top1000funds.com Fiduciary Investors Symposium at Harvard University.  

Trotsky said the fund is doing two things during times of extreme volatility. The first is making sure its managers are not making big tactical bets, including any excessive factor and country exposure that drags it away from benchmarks.   

The second is strictly adhering to a rebalancing strategy.  

“In times of volatility there are going to be some opportunities and, over time, we think by rebalancing aggressively monthly, which is what we’ve always done, that’ll be a tactical approach,” Trotsky said. 

Jay Willoughby, chief investment officer of outsourced CIO company TIFF Investment Management, echoed the need to stay close to SAA and not act rashly when there’s an overflow of information about the markets. 

“If you don’t know what’s going on, don’t try to be a hero and make bets on things that are very low-confidence bets,” he said.   

“I don’t think anybody knows what’s going to happen. I don’t think Donald Trump himself knows what’s going to happen. It’s a reflexivity situation that we’re in that could end very badly or very well for the markets.  

“I would stay close to my SAA as well, even by country.”  

Head of US credit research of Dutch investor APG, Thomas Lee, said the fund’s playbook during uncertainty is to generally become more conservative, but that does not mean pilling into cash.   

“When there’s a lot more unpredictability in the market, you make your portfolios more predictable,” Lee said. For example, he said the fund would gravitate towards investment-grade bonds or double-B ratings for high-yield bonds, which is exactly what it did after Liberation Day. 

Like many asset owners, APG is grappling with the broader shift away from US assets and its impact, but Lee is not too worried about the trend.  

“I do think that there isn’t going to be a major shift at the end of the day, in terms of dollar weakening or assets moving outside the US to other parts. I think there will be shifts, but I just don’t think it’s going to be seismic,” he said. 

“That keeps me more at peace in terms of dealing with the volatility from day to day, and the way that we see is that it does create opportunities, hopefully, to make investments at a lower entry point.”  

CDPQ’s New York-based managing director and head of Americas, Yana Watson Kakar, said she is bullish on the US. The fund has around $150 billion invested in the nation, and she pointed out that nine of the world’s 30 largest economies are states in the US – sizes significant enough to rival most countries. 

“Economic pain points in the US normally have been offset by what we’ve seen in the bond market and what the dollar does, but not now – so there are some warning signs,” Watson Kakar said.  

“But the fundamentals are strong. Any investment decision is both an absolute and a relative one.  

“Protectionism has been fairly structurally consistent in the United States for some time now. As a long-term investor, we spend a considerable amount of time scenario planning and pay close attention to those actions most likely to impact our investments in the country, or the Québec companies that we support,” she said. 

Bridgewater Associates co-chief investment officer Karen Karniol-Tambour warned that many investors have built up significant vulnerabilities in their portfolios over the past 15 years, which is a period defined by steady growth and US market exceptionalism.

However, the Liberation Day tariffs and resulting market action exemplified how the world is shifting to a new economic paradigm that is much less favourable for traditional portfolios, and investors who fail to address these vulnerabilities face significant risks.

The shift is caused by what Bridgewater calls a pivot to “modern mercantilism” where countries treat the accumulation of national wealth, pursuit of geopolitical strength and economic self-sufficiency as priorities.

“This shift is a very direct threat to what a lot of people hold,” Karniol-Tambour told the Top1000funds.com Fiduciary Investors Symposium at Harvard University.

Specifically, a lot of portfolios aren’t well-equipped to handle weak growth, tightening liquidity from the Federal Reserve, an equity bear market or US stocks underperforming the rest of the world.

While these vulnerabilities existed 15 years ago, investors are a lot more sensitive to them now, with huge US concentration in their portfolios and coming out of a strong equities bull market run. “Naturally, people invest with market cap and so whatever the winners are, you end up holding more and more of them,” Karniol-Tambour said.

“But the environment we’re in today very directly goes at these vulnerabilities and puts them in the limelight for us to stare at and think, how resilient am I to these vulnerabilities going forward?”

US companies are more exposed to risks created by the Trump administration’s volatile trade policies than the direct impact of tariffs would suggest, and the fact that a lot of US corporates are global companies makes them “uniquely vulnerable” in many ways, she said.

“We’re seeing countries get very sophisticated about how to target US companies specifically; how to specifically deal with their market access; how to specifically reduce buying US goods; and how to go after antitrust against these companies.”

This is combined with the fact that negative impacts tend to be more outsized on US equity market earnings compared to positive impacts. According to Bridgewater’s modelling, US-imposed tariffs and retaliation from other countries are likely to be a downward pressure on US earnings that won’t be offset by reshoring and a lower corporate tax.

The beginning of the second Trump administration has also caused the unravelling of the US’ relationships with allies and prompted them to quickly reassess their reliance and investment exposure to the world’s largest economy.

“I think it is somewhat underappreciated by policymakers, at least, how much the flip side of the trade deficit is – of course, the fact that so much capital is coming into the United States,” Karniol-Tambour said.

With the dependence of US dollar and assets on foreign inflows, even just a slowdown in foreign purchases could turn into huge risks to US market performance and currency.

“We’re starting at a point where 80 cents, 90 cents on the dollar that cross any border around the world are coming into the United States, just because of the high market cap and liquidity,” she said.

“All it takes is some reassessment [of US allocation]… to get US underperformance, to get a dollar issue.

“I think we’re in the early stages of that, given how long it takes for governments to shift, for places to reassess and for that money to actually move.”

For asset owners who are looking to address their portfolio vulnerabilities, now is the time to consider the toolkit available. For one, Karniol-Tambour said investors need to “treat the geographical diversification question as urgent”, looking at places like Asia.

“You could take out China with all of its own geopolitical and governance issues, and still say that there’s a lot of places around the world that look a lot less like the United States, and have a lot more of their own drum beating to determine what will happen there, where investors are radically under allocated,” she said.

Other measures worth considering include revisiting the currency hedging position, focusing on maintaining liquidity, and building a portfolio resilient to different economic scenarios.

“The biggest takeaway I have from just the broad shift we’re in in the world, is that when things change, almost inevitably everyone is set up to the world that used to be,” she said.

“And people set up more nimbly, able to take advantage of the world as it is and the changes in it, end up doing better when the world looks different than it used to.”

Opportunities that correspond to the social factor in ESG are much harder to come by than environmental or sustainability-related investments. However, its benefits are substantial and, in some cases, may have a positive impact on asset owners’ pension liabilities.  

That is the view of Lars Wallberg, CEO of Denmark’s Velliv Association (Velliv Foreningen). The association became the sole owner of the €40 billion ($45.2 billion) commercial pension fund, Velliv, after acquiring Scandinavian bank Nordea’s stake in 2019, and distributed the ownership to the fund’s 420,000 members.  

Velliv Association works with a board of representatives – effectively 50 individuals elected by and from among the members – and a board of seven directors. Eighty per cent of the fund’s profit is distributed as an annual cash bonus to members (with €300 million handed down since 2018) and 20 per cent is donated to philanthropic activities (€75 million since 2018).  

Despite living in one of the developed countries in the world, OECD figures in 2022 showed that one in every two Danes will encounter a psychological issue at some point in their life.  

“We in Denmark, and the rest of the Scandinavian countries, will very rarely consider ourselves or talk about ourselves as being happy. We are much too introverted, much too quiet, normally at least, to say that,” Wallberg told the Fiduciary Investors Symposium at Harvard University. 

In reality, however, workplace-related stress and anxiety are major contributors to people leaving the Danish labour market early, and around 50 per cent of Velliv’s benefits payments go to members with mental health issues, he said. 

“A few years ago, it was cardiovascular diseases and so on that dominated [benefits payment]. Now it’s stress, anxiety and depression,” Wallberg said.  

“There are lots of sources [of the problem]. As humans, we always strive to become richer, we expect more of our lives, and we challenge ourselves constantly to be good parents, good workers, have successful careers, travel all over the world. 

“We simply put too much pressure on ourselves and on our peers.” 

Last year, Velliv Association made one of its first social impact fund investments via Dannish asset manager Den Sociale Kapitalfond. The private equity, small-to-medium business-focused fund requires portfolio companies to have plans around how they are engaging with marginalised communities in the labour market.  

This could be people with mental health issues or neurodivergent individuals among other vulnerable communities, Wallberg said. A company example is organic ice cream producer, Hansens, which itself is a four-generation family business and employs local workers in their production.  

“It’s a challenge for a private equity fund, both to earn money and to encourage the companies to include people who are outside or at the margin of the workplace,” Wallberg acknowledged.  

“But they have a proven track record, so we believe in it.” 

Wallberg also highlighted the importance of leadership at asset owner organisations to take care of their workforce, especially young women aged between 25 and 35 which, at least in Denmark, has been identified as the group with highest stress level.  

“My message is, mental health requires both dedications – being among your people, working with them – and it requires leadership, including taking care of yourself as a leader and your management colleagues,” he said.  

Tesla has come under another bout of investor pressure from 12 pension funds, US state treasurers and asset managers. This time shareholders, including Denmark’s $21 billion Akademiker Pension and $279 billion NYC retirement systems, want CEO Elon Musk to get back to work, requesting he dedicate at least 40 hours a week to the company.

In a letter to Tesla chair Robyn Denholm, they called on the company to address “deficiencies in the board’s oversight of company leadership” writing “the current crisis at Tesla puts into sharp focus the long-term problems at the company stemming from the CEO’s absence, which is amplified by a Board that appears largely uninterested and unwilling to act in the best interest of all Tesla shareholders by demanding Mr. Musk’s full-time attention on Tesla.”

The ultimatum came as Musk announced his plans to leave his government post in the Trump administration overseeing the Department of Government Efficiency (DOGE). But as well as calling for any new compensation plan for Musk to include the condition that he spends at least 40 hours per week managing the company, investors want other changes too. They expressed their concerns regarding Musk’s commitment to his privately held companies including SpaceX, Neuralink, the Boring Company and xAI.

“Given his leadership roles at four private companies and his foundation, the Board must ensure that Tesla is not treated as just one among many competing obligations,” the letter read.

previous calls for change ignored

The letter is the latest call for change from increasingly frustrated investors who either plan to divest, or have already.

In March, AkademikerPension, which invests on behalf of Denmark’s academics, announced plans to exclude Tesla from its investments if there is no sign of reform at this June’s AGM. CEO Jens Munch Holst cited Musk’s increasing interference in US and European politics as a particular grievance. Musk visibly backed the far-right Alternative for Germany (AfD) party ahead of the country’s February elections.

“It’s no secret that Tesla has been a market leader in the green transition for years. But when we can tick off a long list of issues year after year with no prospect of improvement, in fact quite the opposite, it’s hard to argue that we should remain invested,” he said.

AkademikerPension has also complained about governance and board independence, given Musk’s family and friends on the Tesla board which includes his younger sibling, Kimbal Musk. Union resistance and workplace issues have also long troubled the investor, which wrote to Tesla back in 2023 with fellow Danish funds KLP, PKA and Folksam, urging the company to respect collective bargaining.

Last April, Swedish pension provider KPA Pension announced that it had divested its entire shareholding in Tesla following a period of “fruitless” engagement regarding its concerns about the company’s attitude towards employees’ union rights.

“Tesla’s attitude towards its employees’ union rights is problematic in terms of KPA Pension’s investment criteria. KPA Pension has therefore tried in various ways to influence the company, primarily together with other owners, where proposals have been submitted to the company’s annual general meeting for two years in a row. Unfortunately, no improvement has been seen and a decision has therefore been made to divest the holding,” wrote Marcus Blomberg, head of asset management and sustainability, on KPA’s website.

In 2023, the $44 billion PensionDanmark also sold its $69 million holding because of concerns around workers’ rights.

Elsewhere Dutch civil service scheme, the €552 billion Stichting Pensioenfonds ABP, sold its Tesla stake earlier in the year. Speaking to Top1000Funds.com, Ronald Wuijster, chief executive officer of APG Asset Management which oversees ABP’s assets, said the investor had sold a €571 million ($585 million) stake in the company as part of an optimisation strategy in the index portfolio.

“For us, investments are made according to four elements comprising return, risk, cost and sustainability, and that hasn’t changed,” he said.

In the letter this week, the 12 investors also called for Tesla to start developing a succession plan, and be ready for both “planned and unplanned or an emergency’” departure of Musk. They also requested the appointment of an independent director with “no personal ties” to other board members. This month, the electric vehicle company appointed John Hartung, the outgoing Chipotle chief financial officer as a director, whose son-in-law is employed by Tesla.

“It is striking that Tesla would nominate a director who, by objective standards, does not appear to be independent—particularly to a board already criticized by investors and the Delaware Chancery Court for its lack of independence,” the letter said.

Tesla’s stock price has plunged by more than 24 per cent since peaking in December 2024. Sales tumbled in the first quarter of this year due to a consumer backlash in Europe, fierce competition from China’s BYD, the world’s best selling electric vehicle maker, and weakness in the company’s home market.

James Davis joined the C$27 billion ($19 billion) Canadian pension fund OPTrust as chief investment officer a decade ago, and since that day has been driving the fund on a path towards a total portfolio approach to managing money. 

Davis told the Top1000funds.com Fiduciary Investors Symposium at Harvard University that OPTrust believes TPA is the best way to deliver the sustainability of pension payments that its members want. 

It’s taken time to get there and to shift the mindset of the organisation from being an asset manager to being a pension manager, Davis said, but that is now starting to be seen in behaviour across the organisation. 

“When I joined, the one thing I noticed about OPTrust was we had super-skilled, talented and successful people, good performance, deep teams, but [we were] very siloed and the mission was missing,” Davis said. 

“We saw repercussions of that, like hoarding of capital, a misunderstanding of risk and so forth. My belief was that TPA could make us better. So notice I said the word ‘belief’.  

“TPA is a belief system, and I think for us, it’s the most aligned to what our members want.” 

Davis said members want sustainability of pensions and “to know that they can count on their benefits today and well into the future”. 

“TPA recognises that while alpha is important, alpha alone does not pay pensions. Total returns pay pensions,” Davis said. 

Davis said there is no single model or method for implementing TPA, so how OPTrust went about it worked for its requirements but may not be appropriate for all funds. 

“For us, TPA is a journey. Every journey has a destination; for us that is plan sustainability… being fully funded, having a stable contribution rate and benefits, sustainability is best measured by the level and the drawdown potential of our funded status. So the metric that matters the most is the funded status. 

“We’re not trying to improve the funded status. We just want to stay comfortably above 100 per cent and try to keep it as stable as possible.” 

Davis said for OPTrust, that means maximising total returns at an acceptable level of risk, in a context where “risk-free returns are not enough for us to keep the plan sustainable”. 

“We have to take risk, and it’s how we take that risk that’s really important,” he said. 

“Risk is scarce – that one of our beliefs in our TPA philosophy – and has to be shared, and we must use it purposefully and efficiently,” he said. 

Capital competition

Davis said that competition for capital is also critical to implementing TPA, and OPTrust begins that process by dividing its portfolio into two large pools: liquid and illiquid assets. Portfolio construction is driven by a belief that the best opportunities for value creation lie in illiquid assets, so an early decision is “how much illiquidity are we willing to accept?” 

“And then we commit capital to that,” he said. But once the fund is committed to that, it uses its liquid asset holdings to achieve the overall total portfolio risk profile it wants, given the risk profile already dictated by its illiquid assets. 

 “At the end of the day, this liquid program acts as a completion portfolio, so it considers what’s happening in the plan; liabilities; what’s happening in the market today, in the economic environment; and what is our overall risk profile in our liquids portfolio,” Davis said. 

“And then this completion portfolio, which is the true role of the liquid portfolio to complete the overall risk profile of the plan, that’s where everything begins, from there.” 

Davis said the concept of total portfolio risk is critical. 

“We think about it, again, in terms of funded status,” he said. 

“So we use a value-at-risk measure, except it’s not value-at-risk around returns, it’s value-at-risk around funded status. What are the chances that our funded status is going to fall, and how much are we willing to accept? 

Constructing a portfolio – the mathematical and actuarial aspects of it, at least – are one thing; there is also a significant cultural and human-behaviour barrier to overcome when shifting an investment organisation onto a TPA footing. 

“So first of all, we’ve got a mission: sustainability of the plan,” Davis said. 

“I need to set an investment objective that’s aligned with the overall mission; we’ve done that. I need to make sure my strategy is appropriate and aligned with the objective. And then I need to make sure my culture is supporting the overall strategy.” 

Davis said that “culture stuff is really, really important, and that’s a huge chunk of the journey that we’re on now”. 

“I need a collaborative culture,” he said. “I need a culture of continuous improvement; a total portfolio mindset. Stop thinking about your own little silo and start thinking about the big picture. We’re moving there – not 100 not there, but we’re moving there.” 

Davis said a balanced scorecard is the right way to deal with the so-called “soft stuff”. “Not everything has a hard number,” he said. “A lot of things are squishy, and you don’t really know how to evaluate them. We’re taking a red, amber, green – a RAG approach, Thinking Ahead Institute, Roger Irwin, way of thinking about this.” 

Investment teams typically want to be set clear objectives, and then to be assessed against those objectives. 

“Do this, do that, do the other thing, and then we’ll evaluate you whether your meets or exceeds expectations,” he said. Unfortunately, Davis said, such an approach doesn’t help the fund do its job any better. 

“We need the support of the entire organisation for us to be able to be able to deliver on this challenge of plan sustainability,” he said. 

“They have to see themselves in this; they have to believe that at the end of the day, they’re making a contribution, and we have to be able to reward them too. So this is really, really important.  

“And what I would say…in terms of challenges and where we are, at the heart of TPA is acting as a team, coming together with a common mission, collaborating, recognising we have to share resources. It really is about culture, it’s about a total portfolio mindset, and it’s about continuous improvement. So this never ends.” 

Venture capital funds need to “break the tyranny” of their typical 10-year cycle as it is choking the funding for innovative sectors whose commercial value takes longer to be realised, said Harvard Business School professor Josh Lerner. 

Speaking at the Top1000funds.com Fiduciary Investors Symposium at Harvard University, Lerner – who is also director at not-for-profit Private Capital Research Institute – said the fact that VC portfolios are increasingly concentrated in a narrow band of sectors is a worrying sign. 

The number of US startups receiving a first round of funding from VC is highest in the software and business and consumer product sectors. Since 2015, more than 3500 – and sometimes more than 4000 – companies have received VC funding each year, while that number is 1500 or less for startups in biopharmaceutical, medical devices, telecommunications and other hardware sectors, according to Lerner’s research.  

“If you think about the venture [capital] game, a lot of it is putting a little money in, figuring out whether something works or not, and putting a lot more chips on the table,” he said. 

“The problem is, for much of this tough tech area, that game just doesn’t really work as well.”  

For example, Lerner said, investors might have to sink billions of dollars to build a fabrication plant before knowing if it can produce viable chips or if there is market demand.  

“Unlike code, which has this beauty of if you get it to run once, it’ll run an infinite number of times, the real-world is a bit of an ugly place,” he said.  

Lerner acknowledged that reasons why these so-called deep tech ventures, such as healthcare and clean tech, are difficult to invest in are multifaceted. Venture capital funds’ 10-year set-up and the need to return investor capital within that time frame is only one of them. 

They also tend to have lower relative returns compared to highly commercialised areas like IT due to capital intensity and the time needed to de-risk the underlying technologies.  

In addition, the broader deep tech industry structures present challenges – energy, materials and the majority of healthcare markets are often complex, ridden with regulations and with low margins. The government is also an important and sometimes primary customer. 

While venture capital and corporates have never historically been big funders of long-term innovation, Lerner said what’s added to the challenge in recent times is the pullback of government money which has been the backbone for the development of hard-to-monetise but societally important technologies.   

Between February and April 8 – less than 40 days – the Trump administration terminated 700 National Institutes of Health grants worth $1.8 billion, according to analysis published in medical journal JAMA. 

This is where asset owners have a critical role to play as providers of patient capital and encouraging investments in line with that philosophy, Lerner said. 

“I think in some ways it’s easy to beat up on the GPs and say, ‘look at these stupid, greedy people’, but in many cases, many of the pathologies that you see on the GP side have their reflections on the LP side,” he said. These include personnel changes leading to a re-evaluation of capital commitment, Lerner said. 

“In general, I think that there really is a mismatch between many features of the venture system and many of the really large technological challenges that are out there,” he said. 

“It’s hard to get from one equilibrium to another one, but certainly this is a challenge that we can think about.”