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About Sharan Burrow
Sharan Burrow was elected General Secretary of the ITUC at its Second World Congress in Vancouver, June 2010. Prior to this, she held the position of ITUC President since its Founding Congress in Vienna (November 2006) and the position of ICFTU President since its 18th World Congress in Miyazaki (November 2004). She is the first woman to have held any of these positions.
Sharan was born in 1954 in Warren, a small town in western NSW, into a family with a long history of involvement in unions and the struggle to improve the lives of working people.
Her great, great grandfather participated in the shearers’ strike of 1891/92, becoming one of the first organisers for the Australian Workers’ Union and standing for the state seat of Cobar for the fledgling Australian Labor Party in 1896.
Sharan studied teaching at the University of NSW in 1976 and began her teaching career in high schools around country NSW.
She became an organiser for the NSW Teachers’ Federation, based in Bathurst, and was President of the Bathurst Trades and Labour Council during the 1980s.
Sharan was elected Senior Vice-President of the NSW Teachers’ Federation and became President of the Australian Education Union (AEU) in 1992. She represented the AEU on the ACTU Executive through the 1990s.
Sharan was previously Vice-President of Education International from 1995 to 2000. Education International is the international organisation of education unions representing 24 million members worldwide.
In May 2000, Sharan Burrow became the second woman to be elected President of the Australian Council of Trade Unions (ACTU).
In October 2000, Sharan also became the first woman to be elected President of the International Confederation of Free Trade Unions Asia Pacific Region Organisation.
She has also served as a member of the Governing Body of the International Labour Organisation and a member of the Stakeholder Council of the Global Reporting Initiative. As part of her ILO responsibilities, Sharan chaired the Workers’ Group of the Sub-Committee on Multinational Enterprises.
Sharan Burrow was re-elected General Secretary of the ITUC at its 3rd Congress, in Berlin, May 2014 and at its 4th Congress, in Copengahen, December 2018.

About Amanda White
Amanda White is responsible for the content across all Conexus Financial’s institutional media and events. In addition to being the editor of Top1000funds.com, she is responsible for directing the global 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. She holds a Bachelor of Economics and a Masters of Art in Journalism and has been an investment journalist for more than 25 years. She is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

What is the Fiduciary Investors series?
The COVID-19 global health and economic crisis has highlighted the need for leadership and capital to be urgently targeted towards the vulnerabilities in the global economy.
Through conversations with academics and asset owners, the Fiduciary Investors Podcast Series is a forward looking examination of the changing dynamics in the global economy, what a sustainable recovery looks like and how investors are positioning their portfolios.The much-loved events, the Fiduciary Investors Symposiums, act as an advocate for fiduciary capitalism and the power of asset owners to change the nature of the investment industry, including addressing principal/agent and fee problems, stabilising financial markets, and directing capital for the betterment of society and the environment. Like the event series, the podcast series, tackles the challenges long-term investors face in an environment of disruption, and asks investors to think differently about how they make decisions and allocate capital.

About Philip Duffy
Dr. Philip Duffy is a physicist who has devoted nearly 30 years to using science to address to the societal challenge of climate change. As a former Senior Advisor in the Obama White House, he has helped shape domestic and international climate policy, US global change research, and was involved in international climate negotiations. Dr. Duffy often engages policy- and decision-makers, and serves on committees of the National Academy of Sciences. He is particularly interested in working across traditional boundaries to address climate change, building partnerships with faith leaders, business leaders, and thought leaders across the political spectrum.Dr. Duffy serves on committees of the National Academy of Sciences, and is frequently quoted in major national media outlets such as the New York Times, the Washington Post, Science, the Boston Globe, NPR, CNN, and MSNBC.
Prior to joining Woodwell Climate Research Center, Dr. Duffy served as a Senior Policy Analyst in the White House Office of Science and Technology Policy and as a Senior Advisor on the White House National Science and Technology Council. Before joining the White House, Dr. Duffy was Chief Scientist at Climate Central, an organization dedicated to increasing public understanding and awareness of climate change.

Executives at the South Carolina Retirement System pulled off a previously unimaginable task in 2020, conducting a complete review of the fund’s asset allocation, simplifying its portfolio, negotiating with suppliers, and gaining approval from the commission, all while working entirely remotely. Amanda White speaks to executive director Michael Hitchcock about the new portfolio and the process of getting there.

The South Carolina Retirement System has simplified its investment portfolio, moving from 18 different asset classes with 21 different benchmarks, to just five asset classes.

“We did a major redo of the asset allocation we called portfolio simplification, and we got the commission to approve it and implement it during the height of the pandemic,” says Hitchcock.

The exercise also changed the process acknowledging that the commission sets the policy portfolio and the actual portfolio, where the investor implements investments, is where complexity can show up. This now means the fund has a reference portfolio made up of stocks and bonds in a 70:30 split, which as the name suggests is a reference for the policy portfolio.

The policy portfolio was where all the action was in 2020. It is a multi-asset portfolio with similar expected volatility as the reference portfolio, consolidating the 18 exisiting asset classes into a more simplified allocation without impacting expected return.

The fund was complex and there was a concern it was over-diversified. With 18 different asset classes, many of the asset classes had small target weights, some with less than 3 per cent.

“We had a bunch of small allocations, like 4 per cent to EMD and 2 per cent to TIPS, which were always on. In the new allocation we didn’t prohibit these things but if we are adding complexity we have to have confidence to adding value,” Hitchcock says. “Simplicity is the basic premise, and complexity has to prove itself. We changed the way we thought about it.”

The fund’s portable alpha program – which is about 10 per cent of the fund in low beta hedge funds was reworked as well.

“The reworking of the hedge fund portfolio has taken a significant amount of time. We are aiming holistically for more persistence than magnitude, more diversification from a manager perspective. We don’t want a lot of snuck in beta in that portfolio,” he says. “That is benchmarked to cash plus 250, we are not looking for home runs, we just want a nice consistent 30-60bps a year at the plan level. Anyting more than that is gravy.”

In the second quarter of last year the $36 billion fund participated in $13 billion of transactions to implement this new asset allocation, all while working remotely.

“We had a look at some portfolios that weren’t as drastic, but where we got to felt right. We maintained flexibility to do more complicated things when the environment was right but were not forced into it by virtue of a target,” he says.

The new asset allocation

Consistent sources of alpha

As part of the change, the fund has moved all of its public equities to passive indexed to the MSCI ACWI IMI Net. It consolidated from 12 managers down to three, working primarily with Blackrock and State Street. Similarly most of the bond allocation is indexed to the Bloomberg Barclays Aggregate with a small portion off benchmark in emerging market debt and high yield.

Instead the focus is on part of the portfolio where it sees a possibility to get consistent outperformance over the public market equivalent, so asset classes like private equity, private debt and real estate.

“There is no room for complexity in public equities,” says Hitchcock. “We have a time horizon of 40-50 years, we are a decades long investor. We are not going to find an active manager that can outperform over that stretch of time, why pay for the opportunity to earn less.”

Similarly in bonds the fund wants the opportunity to add value through complexity but not to have a constant allocation.

“We want to look at when is the opportunity right to get paid for that complexity, it frees us up to think about timing. We are not trying to be cute and market time but look at when the environment is right.”

The implementation portfolio has flexibility for the investment staff to make decisions around those opportunities. The target allocation is 26 per cent in investment grade core bonds but there is a range of 15-35 per cent with potential investments in EMD, high yield and cash.

In the alternatives allocations – which is private equity (9 per cent), private debt (7 per cent) and real assets (12 per cent) – the fund spent a lot of time ensuring it built the right process including a lot of time on rebuilding investment and operational due diligence.

Albourne was hired as a speciality consultant and the due diligence is aligned with the consultant’s view of the manager.

“The more conviction Albourne has then the less independent work we do and vice versa. We want to create the confidence the manager can add value.”

Last year the fund launched a co-investment private equity program in a bid to reduce risk and enhance returns and Hitchcock says that has generated a lot of deal flow.

“In our private market portfolio we’ve been spending a lot of time on the coinvestment program and seen a lot of success in getting deal flow and that program has really taken off. We’re trying to get that to about a third of the 9 per cent allocation to PE.”

Also within private equity he says the fund has been looking to move more down market away from the mega leverage buyouts into middle and smaller end of the market.

The implementation portfolio

Change for the better

It is hoped the simplification of the asset allocation will enhance returns, reduce costs, free the investment team to be more opportunistic and increase accountability.

“We looked at how to help enhance return and freeing ourselves to focus on where we can get outperformance which is more in private markets.”

The SCRSIC has long had a focus on fee transparency and is a leader in the industry, particularly in the private market fee disclosure.

Hitchcock says the new asset allocation reduces cost. In public markets for example the fund previously spent $20-40 million a year on fees, and the portfolio is now indexed.

“And holistically from managing the firm perspective this gives you the ability to focus resources on where you’ll find some alpha.”

Institutional investors are facing growing calls for a stronger engagement in development, in particular for infrastructure, climate and social investments. The investment requirements for global sustainable development are huge. State budgets are already stretched in most emerging markets and developing countries (EMDE), with tax bases weakened and public debt piling up.

Stagnating private finance in developing countries

The pandemic has exacerbated weaknesses also on the private sector side. External private finance tends to be highly volatile in EMDEs. Foreign direct investment has severely slowed down. Portfolio investments play an insignificant role in low-income countries, where capital markets are less developed. Even the controversial Chinese banks’ lending has retracted.

The World Bank’s PPIAF reports stagnating volumes of infrastructure projects with private participation in EMDEs at around $100 billion per year, or about 0.3 per cent of GDP. Furthermore, they are mainly concentrated in a small number of middle-income countries like China, India, Brazil, Vietnam or Russia. Low-income economies only see a small and even shrinking fraction, according to the G20’s Global Infrastructure Hub.

Mobilising “blended finance”

Multilateral development banks (MDB) and other development finance institutions (DFI) are being urged to step up in their role as active facilitators of private investment, in addition to the traditional operations such as grants, loans and advisory services. The “mobilisation” of private capital for development by MDBs has, so far, been small (about an annual 0.2% of GDP). Only a few billions reach the poorest countries, of which little goes into health, education and other social infrastructure. Loans and guarantees are the dominant instruments while fund vehicles and equity stakes appear under-used.

There is no shortage of opinions on what governments, DFIs and investors should do to improve the flow of money. One concept has become much talked about in recent years: “blended finance”, the use of public or philanthropic finance to increase private sector investment in development. Scope, metrics and definitions vary widely. Blended finance vehicles are often complex and not easy to scale up. Importantly, the involvement of asset owners is still meager.

Obstacles for institutional investors

The spotlight is now on institutional investors, often seen as reluctant to deploy at least a fraction of their $150 trillion of assets to crucial investments in EMDEs. Many investors are indeed keen to broaden the set of investment opportunities in growth markets. There are various hurdles and challenges, including:

the (actual and perceived) political, regulatory and micro risks
regulations, fiduciary duty, investor mandates
investor capacity and costs
specific constraints for less liquid investments like transport or water/sewage projects.

How to match long-term investing with development needs? Our comprehensive report, Financing Development: Private Capital Mobilization and Institutional Investors, provides key analysis and recommendations for both policy makers and investors. In fact, institutional investors have moved into emerging markets since the 1990, mostly by buying securities of large, listed companies (such as financials, utilities or telecoms) or government bonds. More investors are now gaining exposure to EMDEs via private equity/debt or infrastructure funds. Some large asset owners are undertaking direct investments e.g. in renewable energy.

In short, investors can build on experience gained in middle income countries. There is scope for progress also in less developed economies when the conditions are right and opportunities arise. The main burden is with governments. More and better action is possible, with the DFIs here to help.

Creating long-term investment opportunities

Investment environment. Good governance in a reasonably stable legal and political environment is paramount. The less developed a country, the more public institutions – domestic and international – must to be up to the task.
Investable assets. Governments need to work out a pipeline of assets that are suitable for private sector investors. Clarity on the underlying, long-term funding will facilitate financing and investing.
MDBs: Many international investors find co-investing alongside MDBs a good way of entry into “more difficult” countries and riskier, less liquid assets – for reasons of experience, risk mitigation, local knowledge and political clout.
Co-investment vehicles

Equity co-investment vehicles for riskier countries and sectors are still underdeveloped. Both commercial and blended finance vehicles (e.g. with certain limited credit enhancements or insurances) targeting investors of different risk appetite could be expanded.

Domestic investors

As their asset base grows, domestic investors in EMDEs can play an increasing role not only in domestic and regional investments, but also help crowding in international asset owners.

Sustainability and impact investing

Responsible investor boards are keen to raise their ESG and SDG profiles, opening a new door. Such demand could be increasingly satisfied in EMDEs. Green and social bonds will gain momentum also in developing countries. We see tentative steps towards investing in low-income countries via impact funds, e.g. in water, housing and other community projects.

Expectations need be realistic on the potential of institutional investors, particularly in less-developed countries. Policy makers, DFIs and investors should not just focus a few headline policy vehicles. They need to better utilise the full spectrum of investment routes: impact, blended and especially commercial. Even small re-allocations of capital can have a big impact on the ground.

Georg Inderst is an independent adviser to institutional investors and international institutions, based in London.

The world of zero interest rates presents a number of investment challenges and in our view calls for new ways of thinking in order to create new betas, new alphas, and new ways of constructing portfolios. Although there are no new asset classes, there is the potential to create new beta and alpha return streams from what exists. This is possible because macro conditions are manifest in the spending and incomes of businesses, creating the potential to engineer new cash flow streams from collections of companies whose cash flows and pricing are fundamentally driven by specified macro conditions. The returns of these engineered equity portfolios can be further refined by combining them with hedges or diversifying exposures in other liquid markets, and this can be done either passively or actively. The net result can be newly engineered return streams to create portfolios which have less risk at the same or higher returns as traditional equity or multi-asset portfolios, without holding nominal bonds.

One way that we have applied this way of thinking is through what we refer to as stable cash flow equities. The goal is to engineer a stable cash flow stream from equities in order to replicate some of the properties of a bond. The process starts with identifying stable and reliable types of spending in the economy, connecting that spending to the revenues received by the companies that offer those goods and services, and then screening for a relatively unobstructed passage of that revenue to earnings. The selected companies are effectively used as pass-through vehicles to earn a sliver of the cash flow stream generated by stable forms of spending in the economy. The constituents of the portfolio rotate over time to continuously source their income stream from the associated type of spending, creating a new cash flow stream that you can hold passively or manage tactically. Below is what that cash flow stream looks like compared to the cash flow stream of the overall equity market in the US since 1963 and in other developed countries since 1990.

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As lot happened in 2020 and there are lessons to be learned for all of us. 2021 brings opportunity, if you know where to find it. We have summarised the key topics investors should consider in relation to how we work, think and invest.

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