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The $50 billion-plus South Carolina Retirement System Investment Commission’s (SC RSIC) shift into positive cashflow has enabled an increased allocation to private equity and private credit.

The changes, which are expected to boost long-term returns, took effect on July 1 following a five-year strategic review.

“The better that liquidity position is, then it gives you a greater ability to have more exposure to the things that we think are going to add value over their public equivalents over time, like private equity, private debt, private real assets and hedge funds,” chief executive officer Michael Hitchcock said in an interview with Top1000funds.com.

Funding reform, improved salaries, and positive investment returns have flipped the defined benefit plan’s position from about four per cent cash outflows in 2016 – roughly $1 billion of annual outflows on its then-$30 billion size – to about one per cent cash inflows today.

“That’s self-reinforcing because you don’t have those outflows, you’re able to invest in the things that are giving you a better return. So that really has a multiplier effect for helping improve funded status.”

Private equity was boosted by three percentage points to 12 per cent of the portfolio while private credit was increased by one percentage point to eight per cent. Those tilts were funded from the plan’s equity and bond allocations.

Interim chief investment officer Bryan Moore said private equity was SC RSIC’s “purest expression of risk”.

“Back in 2019, we were talking about having a nine per cent private equity target – we were always underweight private equity,” he said.

“We didn’t have a very consistent deployment schedule and we really refined our sourcing methodology, as well as our use of co-investments, and that has very much allowed us to move this portfolio into something that feels very high quality.”

The fund targets smaller managers and co-invests alongside them to moderate the impact of the J-curve.

Over three years, the asset classes that delivered the highest excess returns above their benchmarks were real assets ($922 million added return), portable alpha ($675 million), and private equity ($480 million).

Infrastructure makes up about one-quarter of the fund’s real asset portfolio (about 3 per cent at the plan level) and has provided strong consistent cashflows that match the plan’s long-term liabilities.

“We really want to get the more core-like infrastructure assets that look and behave like infrastructure assets versus opportunistic where you’re using maybe an infrastructure asset, but with a private equity playbook,” he said. “We’re not doing infrastructure that has more of an operating company play to it.”

The fund’s portable alpha strategy has also delivered, adding about $1.8 billion to the plan since 2018 with no down years, Moore said. It uses Treasury futures to fund its exposure to equity market-neutral and multi-strategy hedge funds.

“I think scalability is going to be hard as we think about a plan that’s growing. We have a lot of relationships from when we were $30 billion plan that no longer need more capital, that are returning profits to us.”

While the SC RSIC is banking on private assets to deliver long-term outperformance, it was strong equity markets that drove the bulk of its 11.34 per cent net gain in 2024-25. Its equity portfolio is passively indexed to the MSCI ACWI IMI Net index.

Equities make up the bulk of its portfolio, which was simplified in 2020 across five asset classes: public equity (43 per cent), bonds (25 per cent), private equity (12 per cent), private debt (eight per cent) and real assets (12 per cent).

The fund has held its position close to benchmark across the calendar year given high levels of uncertainty following the Liberation Day announcement in April.

“There’s so much noise happening in the world right now that we’ll see what wave crashes, and then we’ll adjust the portfolio as we see that happen, but I think that’s where having that optionality and the ability to counterattack is really a valuable part of our portfolio.”

The US has long been the global leader in technology innovation, with Silicon Valley and the entrepreneurial spirit that pervades it putting American companies at the forefront of global equity markets for decades.

But China is now challenging that lead, Ben Way, head of Macquarie Asset Management told the Top1000funds.com Fiduciary Investors Symposium at Stanford University.

“The US is the most innovative and entrepreneurial economy. However, across a range of tech and energy sectors – advanced materials, hydrogen, robotics, synthetic biology – you can make the case that China is leading. And I think this is one of the stories that’s quite misunderstood. It’s an interesting debate to be had about who is currently the most advanced.”

Shenzhen – where Way has visited BYD’s Pingshan campus – looks like “the city of the future”, and is a hotbed of technology and innovation, led by robotics and EV technologies.

“The ability of CATL (EV battery manufacturer) or BYD to produce more and more advanced technologies at scale at 7-sigma precision is real. Especially when you consider other competitors are struggling to deliver innovation at 6-sigma.”

But Way said that “massive” opportunities like decarbonisation, deglobalisation, demographic change and digitalisation aren’t limited to these two superpowers – and that he’s more excited as a real assets investor today “than at any other time” in his career.

“For example, today, you can deploy large-scale capital in Japan, including taking control of companies across multiple sectors. That wasn’t a huge opportunity set 5-10 years ago,” Way said.

“You can do the same thing in Korea, which is our biggest market in Asia. We have some 40 portfolio companies there today dating back to the early 2000s. That has been a market where you could have an impact at scale for some decades – we helped build the bridges and the roads that allowed Korea’s economy to really pivot into tech export after the Asian currency crisis.

Macquarie is also exploring emerging markets for deals. While some sectors are fairly richly valued at the moment, the opportunity set is staggering. For example, the vast majority of India’s vehicles still run on old diesel engines, and in a nation of 1.4 billion people, the opportunity to electrify and modernise transport is “significant and needed”.

“Opportunities are coming from everywhere. The rise of deglobalisation, particularly around security – whether it’s supply chain security, critical minerals security or energy security – is creating a new opportunity set in most countries around the world, particularly the top 30 investable markets for institutional capital. This thematic is much more pronounced than it was five years ago.

So, while I wish the world was calmer, while I wish there was less polarisation, while I wish for less volatility (and fairer access to education) … I am excited about the real assets opportunity set, and I am an optimist.”

Matt Pottinger, the former US deputy national security adviser during the first Trump administration, has warned that China could spark “a very serious crisis” in Taiwan without even resorting to a full-scale war – an escalation he said could occur in the next four years and should “keep President Trump and many more people awake at night”.

The comments came soon after China marked the 80^th anniversary of World War II and the Second Sino-Japanese War with a military parade at Tiananmen Square, where President Xi Jinping addressed over 12,000 troops of the People’s Liberation Army in a decisive show of national security force.

Also present at the parade was Xi’s close ally, Russian president Vladimir Putin, who is escalating his war against Ukraine. This worries Taiwan’s defence ministry, whose deputy chief of the general staff for intelligence Hsieh Jih-sheng recently told an international security conference that the defeat of Ukraine could embolden China to seize Taiwan.

But Pottinger said there are many ways for China to make Taiwan’s life harder without initiating a hot war. For example, the Chinese government could issue a notice to the world’s major shipping companies – which are predominantly Asian and European – requesting that access to Taiwanese ports be granted only with its permission.

“That immediately will put the world’s shipping industry on the horns of a dilemma,” Pottinger, who is distinguished visiting fellow at the Hoover Institution, told the Fiduciary Investors Symposium at Stanford University.

“They will either have to salute and basically cede the idea that Taiwan has any sovereignty, even over its own trade, or they risk not being able to do business with China, which will collapse most of the world’s shipping companies.”

China’s focus on Taiwan reflects its strategic significance in the region as well as their complex cultural and historical ties. Claiming Taiwan would be a “strategic coup” as it would allow China to break free from the geographic constraints of its military power – the so-called “first island chain”, Pottinger said.

“Anytime China wants to send its ships, submarines and aircraft, they really have to go through a toll booth and be permitted to do that,” he said.

“So Chinese military doctrine says if we take Taiwan, we can effectively surround Japan, collapse the entire strategic defensive concept for Japan, and cut off Japan’s access to energy and even food.”

The fact that even a “bureaucratic circular” could set off a serious crisis in Taiwan should make the US and the world very concerned, he added.

Meanwhile, having worked with Trump in his first term, Pottinger said the president is “someone who does not actually prioritise national security”. Trump’s focus leans towards tightening immigration policy – which to him, is a form of economic foreign policy rather than a security policy – and expanding his control over other levers of power such as the Federal Reserve and the media.

Adding to potential myopia in the US’ security strategy is the fact that Trump gutted the National Security Council this year.

“As of a month ago, there were only about 36 policy staffers in the White House working on national security. To put that in context, that’s sort of around where it was at the dawn of colour television,” Pottinger said, adding that these functions have been effectively replaced by private sector advisers.

“[These are people like] David Sacks, who is a part-time AI and crypto czar; Jensen Huang, who is not at all a government official, but is the lead adviser – really replaced Elon Musk – to the president on technology and AI, including national security implications of those things,” he said.

“We’re in a weirder space, I would argue, than we were in the first administration where President Trump was surrounded by generals… and they would bring up [national security] things before it was a crisis.”

Looking ahead at the US-China relationship, Pottinger said Trump will be caught between the “hard realities” of trying to impose tough tariffs on China, and realising China is making speedy progress on its decoupling from the US.

“[Xi] may agree to buy some new shipments of soybeans or a few more Boeing jets, but he’s not going to shift his economic model, which is… explicitly making China independent of any inputs from the United States and other industrialised democracies.”

At the end of Trump’s first term, he was under pressure politically because of the havoc that the Covid pandemic wrought on the US economy – a “grievance” he has been nursing since 2020, Pottinger said.

“[If Trump meets with Xi later this year], he’s going to come away with a few soybean sales, and he’s going to start through that cycle of nursing grievances again.”

“Everything is permissible, but not everything is helpful.” 1 Corinthians 10:23, International Standard Version

In my last thought piece on misinformation (Data ‘slop’ and disinformation emerge as systemic risks for investors), I noted the likely ballooning in quantity of ‘AI slop’ (AI generated information) that we will have to deal with in our search for meaningful information as time passes.

This reminded me of the TS Eliot quote, “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”.

This implies a hierarchy, where volume and value are inversely correlated. Think of a shallow-sided pyramid where there is masses of data at the bottom, which must be filtered into rarer information, which must be heavily filtered into knowledge, which in turn yields only a few nuggets of wisdom.

My argument in this piece will be that intelligence is not our goal – whether artificial or not. Our goal should be the much more valuable wisdom. Now, if we were to start hearing about ‘artificial wisdom’ then maybe we would be on the brink of something interesting…

In the Institute we have, occasionally, promoted the idea that ‘wisdom’ equals ‘what I should do on Monday’. If the implication is that we have spent the weekend in thought and reflection, and the emphasis is placed on the ‘should’, then maybe all is OK.

But in the absence of reflection, and if the emphasis is on the ‘do’, then we have likely introduced a bias to action which could run directly contra to wisdom. This piece will argue that a large part of wisdom lies in ‘not doing’, even though we could – or are tempted to.

The next idea I want to introduce is the Jevons paradox (see The efficiency trap). The paradox observes that increasing efficiency should lead to us using less materials, but we actually end up using more (because the price drop makes other uses newly viable).

Jevons was commenting on the efficiency of steam engines, which should trigger a fall in the use of coal. But cheaper coal led to more steam engines for more uses, and more coal was burned in total. Economic history from that time to the present is littered with similar examples.

Contrast this ‘reality’ with a story, possibly apocryphal, that I heard recently about an indigenous people group. They innovated a new fishing hook which made their fishing more efficient. Through the lens of our reality we would expect more fish to be caught, and to be put to more uses (feeding livestock, or selling).

Instead, they spent less time fishing. They enjoyed the same amount of fish, exerted no new pressure on fish stocks (sustainability!), and had more time to invest in social capital.

The fundamental difference between these two possible paths is best captured by the word ‘constraint’.

I will label the first path, of catching more fish and selling the excess, the ‘increasing financial capital’ path. It is relatively unconstrained. The same amount of time is spent fishing, the same amount of time can be invested in social capital, and the group will have more financial capital.

There is a big implicit assumption, however, that the new, higher rate of extraction is sustainable. If it isn’t… well that is a problem for the future. If the financial capital is stewarded wisely, it can possibly be converted back into fish later.

The second path I will label as ‘increasing social capital’.

There are a couple of possible implicit assumptions here (when viewed through a Western lens).

First, that the current rate of extraction is sustainable while a higher one might not be. And, second, that social capital is more valuable than financial capital. There is also a fairly heavy constraint – either self-restraint, or community-imposed – to catch fewer fish than they could.

So, which course of action is wiser – increasing financial capital or increasing social capital?

I am not claiming there is an easy or obvious answer to this question, as the Western and indigenous lenses may conflict. It will depend on the objective function, the time horizon and the beliefs.

However, one of them looks unarguably riskier (the financial capital path carries the risk of over-fishing). And, if we extend our time horizon to include multiple future generations, then the wiser course of action increasingly looks like the social capital path (there is less chance of existential risk).

To me, therefore, intelligence is a device for expanding the opportunity set, while wisdom is a device for shrinking it – “everything is permissible, but not everything is helpful”.

Now comes the hard part: how do we sift the dirt pile into those things we could, but shouldn’t, do – and those things that will be helpful over the long term (the jewels)?

Again, I cannot provide an easy or obvious answer. If I may, I refer back to a previous piece I wrote, titled What’s love got to do with it?.

In it I talked about head knowledge and heart knowledge, and argued that heart knowledge had access to all the same inputs as head knowledge but, rather than run them through a cost-benefit analysis, it ran them through a ‘love algorithm’.

I think this is the closest I can currently get to wisdom. If the proposed course of action expands the boundary of love – for others, for non-humans, for life not-yet-born – then it is likely to be wise.

If it shrinks the boundary of love, for example by inflicting cost on others, on non-humans or on lives not-yet-born, then it is probably intelligence rather than wisdom.

Tim Hodgson is co-founder and head of research of the Thinking Ahead Institute at WTW, an innovation network of asset owners and asset managers committed to mobilising capital for a sustainable future.

Stephen Kotkin, global geopolitical expert and Stanford academic, has warned that there is an “increasing governability challenge in high-income democracies” where government departments face declining capacity to perform core functions due to complex regulatory systems and bureaucratic tasks.

This has enabled populist politicians – who “don’t want to fix the government” but “want to remove the institutional constraints on executive power” – to thrive, said Kotkin, a senior fellow at the Hoover Institution.

“They don’t want governance to function. They want to disable those governance structures so that they have what they consider free reign,” he told the Top1000funds.com Fiduciary Investors Symposium.

“This is a deep and fundamental problem that we don’t have a solution for.”

Looking at historical data in the US and European Union countries, while the population and size of government have only increased marginally since 1979, the regulations and responsibilities government has to carry out have experienced an “exponential” jump, Kotkin said.

“Each regulation has a kind of logic, but they just accumulate. Something happens in the world, whatever it might be, and people say ‘Do something. Don’t sit on your hands’. So they pass a rule, a regulation or maybe even a law through the parliament,” he said.

“In a complex system, nothing interacts with the other things the way you expect. One regulation might be for environmental restrictions, to defend the environment, but then it becomes the principal instrument for not building any more housing.

“It’s the tasks of government that we’ve put on them that they are not designed to do and can’t cope with. So when they mess up, the populists come along and say, ‘government is failing’.”

US president Donald Trump’s Department of Government Efficiency (DOGE), previously headed by Elon Musk, is the most notable attempt recently made for the purpose of improving government performance. As of October, it claimed to have saved $206 billion in government spending on its website.

However, Kotkin is of the view that reducing the number of federal employees is not ultimately about cost-cutting, but “political purging”.

“The federal bureaucracy is predominantly leftist, and if you are a Republican, elected-by-the-people president, you face this again and again and again that the bureaucracy sabotages your programs,” he said.

“It happened to Bush. It happened to Reagan. It happened to the first Bush. It happened to Nixon. It’s a long-standing problem.”

DOGE is a failure because it failed to understand that the public sector does not function like a private company, but a big, interwoven system where few people understand its inner workings, he said.

“My argument is not getting rid of the officials, it’s getting rid of the tasks that the officials are being imposed with. Because there’s too much that we expect them to do, that they cannot do, that they don’t have the bandwidth for if they’re not designed to do those things, and those things are now perversely used.”

There is a difference between a policy’s intention and its outcome, and not every government official has grasped the idea. Kotkin noted that things like subsidies can look like a clever fix but often backfire. Subsidising ethanol, for example, could be considered support for a cleaner fuel alternative, yet its production depends on oil-powered farming of corns which props up the industry and its lobbyists.

He suggested that politicians refocus on the real challenge when enacting new policies, which is not to come up with ideas, but to get the system to enact them.

“And not the imaginary system at a [policymaking] seminar where you go for sherry when you’re done, but the actual system that you’re facing.

“I agree that we could think about what those [government reforms] are, but I just want to know how I’m going to implement them with the system that I have, with the politicians that I have, with the incentive structures that I have and with the voters’ preferences that might change over time.”

Norges Bank Investment Management is a lean organisation despite managing a $2.2 trillion portfolio. Across the fund’s four global offices, there are only 700 staff, or $3 billion per person, which is why it has made pursuing AI-driven efficiency a core organisation initiative – and a non-negotiable requirement for its employees.

The momentum for change came from the top. At the Fiduciary Investors Symposium, Thomas Larsen, lead portfolio manager of external strategies at NBIM, recalled CEO Nicolai Tangen once told staff in a town hall that “this [AI] ship is sailing, get on board or find a new place to work”.

“There’s not an awful lot of space for building out redundancies and building out big teams. We don’t want to be more people. We want to stay as nimble as we can,” Larsen told the symposium at Stanford University.

“We are limited in number of people, this will allow you to 10x your output. This will allow us to do more targeted work and focus more on the things that you are good at.”

NBIM has seven portfolio managers who can each spend up to a quarter each year on the road visiting external managers – a total of 110 people managing more than $100 billion. How AI can make these visits less overwhelming is by conducting preliminary analysis on manager reports and other performance data.

The fund’s AI agent, Claude by Anthropic, is plugged into its database, which has daily trading data for every manager it has had since 1998.

“If someone sends me a snapshot of the portfolio a couple of periods backwards, I just drop that in [to Claude]. Then I can see what all my other portfolios in the same market did at the same time,” Larsen said.

But behind this progressive technological push, Larsen acknowledged that staff development is top of mind for team leaders. The fund is striving to find the balance between improving efficiency while leaving room for junior staff to make mistakes and learn.

“With these new tools, a lot of what I’m asking AI to do now is exactly the tasks that my PMs asked me to do when I joined as an analyst 12 years ago,” he said.

“I can ask those questions at 2am in the morning or from an airport in Singapore – I’m not beholden to what time my analyst is awake anymore, but it also means that I am at risk of destroying my own pipeline of talent.

“We’re thinking a lot about how do we still curate a talent pool and a pipeline of people who are going to be the next guys making the decisions, when they don’t actually have the luxury of making the mistakes that everyone else makes in the first couple of years.”

Another progressive use case of AI in NBIM’s investment process is a scoring system for internal and external portfolio managers that can pick up subtle behavioural biases when they are executing a trade.

For example, portfolio managers who are good at timing trades would receive the suggestion from the AI system to “swing bigger” while placing trades, and those who have a tendency to destroy value when trading would receive the opposite advice, Larsen said.

“[With external managers] we can see do they make money when they are putting contrarian bets, if they trade before or after earnings, if they trade into something with momentum, if they trade out of something that is downward revisions,” he said.

“We took it out to some of the managers, and 10 out of 10 came back and said ‘can we have two hours with the team that built this? Because we wanted to understand more’.”

Above all the experiments, Larsen said it is critical that the board and stakeholders are brought into the process early through advocacy and education about the technology.

“Show them how it works, show them what it can do,” he said.

“Make sure that you have compliance on board, you have all the people who can say no, that they are comfortable, and can also speak to it [the technology] in an intelligent way, because otherwise you are going to run into roadblocks.”