Elizabeth Corley, chair of Schroders plc and Impact Investing Institute, sees global fund managers approaching a crossroads, where divergent regulation on sustainability issues will make it difficult to satisfy asset owner demands for systems thinking and universal ownership.
When Top1000funds.com interviewed Nicolai Tangen in 2023 about being awarded the most transparent fund in the Global Pension Transparency Benchmark, it was clearly a priority but not yet a completed project for the Norges Bank CEO. In the year since then, the fund has taken the idea of transparency and run with it, making huge gains through a concerted effort that among other things required advocating the government to make governance changes.
Norges Bank has taken the top spot again in the Global Pension Transparency Benchmark, marking two consecutive years of outshining a cohort of 75 funds globally. But perhaps even more extraordinary than the consistency and continuous improvement, this year the fund was awarded a perfect score of 100, up from 89 in 2023.
And if that wasn’t enough, to create the change needed to reach that summit, the necessary improvements included inviting the Norwegian government to upgrade its governance disclosures.
“We got great cooperation from the government and are taking transparency to a new level,” Tangen said in an interview with Top1000funds.com from New York.
“We looked at where we could improve from last year and saw governance was one key area. It wasn’t possible to improve the score without changing the governance so we put in place systems and reports that didn’t exist before.
“We explained to the government where we needed to improve and what was necessary to make those improvements, and we asked them for help. And they really stepped up and we got all the assistance we needed.”
The change includes new documents such as competence mapping of the board, which had not been a public document in the past. In the process, this raised questions over whether the Ministry of Finance should insist all state entities have the same self-assessment.
“We got great cooperation from the board and ministry,” Tangen says. “It’s difficult to do because there is no black and white answer in that survey when you assess your own competencies.”
Transparency has been a strategic initiative for Norges Bank, which manages the Government Pension Fund Global, since Tangen took the helm in September 2020.
It’s not just because being transparent is the right thing to do, nor that the Norwegian sovereign wealth fund is a ‘fund for the people’ and stakeholder management is crucial in the context of Scandinavian values. It’s because transparency builds trust and a platform to be more impactful in generating change.
“It is important for us to build trust,” Tangen said.
“I think transparency and openness is an important Scandinavian value and we see it in the public sector generally.
“This is a very, very important survey for us because transparency is at the cornerstone of the mandate, and the importance of stakeholders and others having trust in the fund is totally key.”
Transparency in action
Tangen said Norges Bank is in a state of constant evolution when it comes to transparency.
“We try to develop transparency in everything we do,” he said, pointing to an exponential increase in the number of people who can speak on behalf of the fund externally from five, four years ago, to 130 now.
“We are showcasing our great colleagues. One of the ways to increase trust is to let the external world see the specialists we have and the real experts we have. It is comforting for people, and builds trust,” he said.
“In my mind if there isn’t a reason for having a secret then you should share it. There are so many positives to being open and transparent.”
Unlike some sovereign wealth funds that don’t disclosure their AUM, Norges Bank publishes its AUM online, and updates the value 13 times a second. It’s also more open on its views and has expectations documents regarding thematics, as well as a podcast, In Good Company, where Tangen interviews CEOs of portfolio companies.
For Norges Bank there is also a connection between transparency and impact in the way it uses its holdings to influence portfolio companies.
The fund’s giant equity portfolio, which makes up about 69 per cent of assets, makes it the largest single owner of the world’s stocks, representing about 1 per cent of all listed equities globally. It votes in 12,000 annual general meetings across 63 countries every year, and five days before each AGM it reveals how it is going to vote, giving other institutional investors and the companies themselves full transparency on their voting position.
In addition, it lists every investment holding on its website by name, which is updated twice a year, demonstrating full transparency in its investments.
Even so, there is a balancing act between transparency and disclosing market-sensitive information, Tangen said.
“We publish holdings twice a year, no other firm discloses holdings once let alone twice a year. More than that and you will disclose how you trade and act in the market,” he said.
The benefits of transparency
As a leader, Tangen believes transparency is not just important for external stakeholder communication and trust, it has many benefits internally, and the leadership group’s meeting notes are shared across the organisation so everybody in the firm can see what is discussed.
And as investment processes and decision making evolves, being transparent can be additive to the effective use of new tools and new technology such as AI.
“If we can de-classify documents inhouse freely and make them available in house, that is a way to build cooperation. The uses of AI are also easier when you are more open,” Tangen said.
He’s not afraid of the markets’ increasing complexity, with technology, geopolitics and climate complexity moving exponentially.
“The world has never been more complex, it’s fascinating and fun. When I wake up in the morning I can’t wait to get out of bed. It’s so incredibly fascinating,” he said, in a revelation of his enthusiasm for his job.
Transparency is a clear indicator of Tangen’s leadership style and he makes no secret of the fact that Norges has an ambition to be the world’s best fund. It’s rumoured that in year one of the GPTB when CPP Investments ranked as the most transparent fund, Tangen said it was OK to be beaten by Canada in ice hockey but not in transparency.
When Norges reached top spot for the first time last year, Tangen told top1000funds.com that it wanted to be “the world’s leading fund, full stop”.
“That includes everything from performance, reputation, our people and leading on ESG,” said.
To be the best in the world the leadership team is focused and deliberate in how it recruits, educates and retains people (it recently hired sports psychologists); how it embraces technology, especially the use of AI; its operational robustness and how it weathers volatility; communicating in a clear and consistent voice; and performance.
The GPTB, a collaboration between Top1000funds.com and CEM Benchmarking, ranks funds on their transparency of disclosures around cost, governance, performance and responsible investment. Norges landed a perfect score in each category in 2024, up from 91, 89, 95 and 94 respectively in 2023.
“What is interesting about the survey [2024], is how it is have lifted all participants,” Tangen said. “It shows the benchmark is doing a really good job and is really lifting transparency in the whole industry.”
In recent years, investors have viewed emerging markets a bit like marmite, the distinctly flavoured spread made from brewer’s yeast: they either like the allocation or they don’t.
Investors are entering challenging return environment underscored by levels of geopolitical risk unprecedented in a 30-year career, says Jeff Wendling, outgoing president and chief executive of Canada’s $113 billion Healthcare of Ontario Pension Plan (HOOPP).
Investors have been supported by a benign geopolitical environment since the Berlin Wall fell in 1989 and China came into the global economy. But Wendling said this has now been replaced by wars in the Middle East, Ukraine and China’s growing show of force around Taiwan.
Indeed, as two separate geopolitical blocs emerge, Wendling questions if investors will be able to get their money out of China long-term.
“Is China even investable for an investor like us?” he questions, speaking to Top1000funds.com following the announcement of his retirement from HOOPP next year.
HOOPP’s exposure to China has fallen over time and is currently only 1 per cent. Investment strategy has always been titled much more to developed markets in Canada – where HOOPP’s $60 billion portfolio includes large real estate and fixed income portfolios – the US and Europe. The pension fund also has a 7 per cent exposure to emerging markets in Asia.
Ideally HOOPP would be invested in China, but he says the fund’s healthy long-term returns endorse a strategy that has never invested very much in the country.
“I think we can do well regardless,” he says.
Wendling’s observations of the investment climate carry particular resonance given his weight of experience – something he believes there is no subsidy for. He joined HOOPP in 1998 and has experience of the tech bubble and the subsequent wreck and was head of public equities during the GFC.
He recalls this period as the most challenging in his career. Mostly because the viability of public equities as an asset class for long term investors seemed to disappear before his eyes.
“That was a very hairy time,” he recalls. “That was a time, literally, when some folks were questioning the usefulness or the appropriateness of public equities as an asset class for pension funds.”
The experiences engrained a set of beliefs that have gone on to shape his career: investment is a cycle; nothing goes straight down (or up) for ever and the darkest points in a cycle also offer the greatest opportunities.
In the depths of the GFC when the S&P 500 was down 60 per cent, HOOPP took on considerable equity risk at unprecedented valuations in a strategy repeated during Covid when the fund snapped up Canadian banks at rock bottom valuations.
“We had Canadian banks selling off 20-30 per cent, trading at 6-7-8 per cent yields. We’re long-term investors and we often invest in those extreme market environments where the opportunities are really exceptional. It doesn’t actually mean you’re going to do well right away. You’ve got to be prepared to hold those things.”
Markets are generally efficient, and investors should be fully invested most of the time, he continues. But there are key moments, every decade or so, when markets become inefficient and characterised by extreme optimism or pessimism. This is when the opportunity for active management and long term investors really shines.
In it for the long term
Holding positions for the long-term has always been the most compelling corner of the investment world for Wendling. He was put off by the marketing component of asset management and believes it’s difficult to create long-term value from trading.
Pension fund investment was a natural fit, particularly as he was drawn to the purpose of helping create retirement security for healthcare workers and a conviction in the role of defined benefit funds in creating that security where around 75-80 per cent of pension payments come from investment returns.
Long term investors are ideally positioned to benefit from the once in a decade dislocation that markets typically experience, he continues. Only they have the ability to buy at these critical junctures because they are backstopped by patient approach that will allow the asset to recover over time without an eye on quarterly numbers.
“If I’m focused on a short-term performance, it’s got to work basically right away. That doesn’t help you make good decisions. If you’re focused on short-term performance, you’re almost trying to figure out how to call the bottom, which is really impossible to do. We’re just trying to figure out where we can make good investments and make good returns for the long term.”
He goes back to Canadian bank stocks bought during COVID to illustrate the point. The team believed it was a great price, and they would be great investments over the long term. They didn’t know when they would recover but they were prepared to hold them. As it turned out, they immediately went up when the stimulus came out.
He says long term investors don’t take a view on whether the market has reached its top or bottom. During the GFC when the S&P was sharply lower the team didn’t know if it was going to fall further or start to climb back up. But they were convinced it was a good time to buy.
Wendling says the internal and external search for his replacement is well under way.
“We’ve got some very strong folks here. But for something like the CEO, the organization is going to do a wide search, both internal and external,” he says.
The fact that he has been able to fulfil so many of his career ambitions at one organization by opportunities to rise up the ranks is a source of enduring gratitude.
The climate challenge represents a new opportunity for asset owners and managers to work together to find solutions and, according to Sonja Laud, chief investment officer of Legal & General Investment Management (LGIM), comes down to an optimisation: an understanding of how you get closest to responsible investment and the individual value articulation alongside financial risk and return profiles.
“We have come a long way,” she says. “Only now the idea of optimisation has come forward because we have a better understanding of what is achievable and how the market reacts. The level of sophistication now is really encouraging.”
When investors first began this journey, value statements were articulated through exclusions but, Laud says, now there is a realisation that is only handing the problem to someone else.
“Investors are looking at the impact in the real world,” she says, adding that in a few years there will be further evolution in the way those value statements are expressed.
“We are seeing high profile investors be far more nuanced across public and private, and more investors willing to say we need to deal with the dirty stuff and more actively engage with those companies. This is a massive leap forward because that’s the missing part of the jigsaw.”
The recent CFA Institute paper Net zero in the balance: A guide to transformative industry thinking, to which the LGIM CIO contributed, advocates that a new framework that includes systems thinking is necessary to branch out from the narrow measurement and management of risk predicated on modern portfolio theory.
In a nod to systems thinking Laud recognises all stakeholders need to be on the net zero journey to have impact, pointing towards engagement with companies that lack knowledge or find it difficult.
“It can be a really powerful message if you are successful engaging with them, they will have a halo effect and you can demonstrate it works,” she says. “If you can articulate a benefit statement to companies – a clear engagement goal, clear path towards it, and it will enhance your financials – there will be mutual understanding so companies and investors push in the same direction. This can be very open, constructive, clear and successful.”
In an example of partnerships in action, last May LGIM partnered with Swedish asset owner, AP7, which was looking for a way to address climate laggards via engagement.
The result was an actively managed climate laggards fund, that has also now been offered on LGIM’s defined contribution platform.
“We are also seeing other large pension funds shifting their investment approach to 3D investing. They are fully aware there might be trade-offs and are very clear and articulate about that,” she says. “They know there is a learning, it might not be perfect out of the blocks but it is forward-looking thinking about how to optimise both sides – positive externalities in the real world and financial outcomes.”
LGIM, as a $1.42 trillion manager, has made a commitment to be net zero by 2050 across all assets under management and has a 70 per cent target by 2030.
The honesty jigsaw
While recognising the industry has come a long way, there is still room for improvement. Laud points to the need for a more honest debate about what it can achieve in the real economy with net zero commitments.
In the wake of COP27, Laud says there is “rightful unhappiness” from the global south in the response by the global north in relation to the carbon intensity of their economic journey.
“Let’s acknowledge that and say we’re not on the same level, there are different standards because of the growth profile and the carbon intensity of that,” Laud told Top1000funds.com in an interview in the manager’s London office.
“In India, for example, energy poverty is a real theme. This is a global problem and we need a just global solution. Until then, we need to be realistic on what we can achieve. What we do in this industry is only one piece of the puzzle and we need a more honest debate about what we can achieve in that context.”
Not only does Laud think more realism is required, she says there is a certain “arrogance to be aware of” and an “ignorance to our understanding of the transition”.
“There is a lot we can do and not hold back to evolve, consider and have honest conversations,” she says. “We need to use the way we invest in order to foster change and allow companies to make sure they are on the right path.”
She emphasises that investing in emerging markets requires a realisation that a responsible investment proposition will look very different to developed markets.
“That understanding is lacking a bit,” she says. “You can’t approach emerging markets companies as if they are on the same path as developed [markets]. That created pushback. Sitting on your moral high horse and telling companies what to do doesn’t work. It will not solve the overall issue of a just transition if investors do more in emerging markets.”
Systems thinking: Understanding your role
A more holistic view embracing systems thinking would imply a shift in policy making as well, Laud says, again referencing the CFA Institute paper.
“We cannot assume financial services will be able to solve climate change,” she says. “There is a big role for policy makers and governments to set the framework right, a stable framework. Private capital will only come if the framework is stable and the assumptions and calculations around investments are stable.”
For governments, she says, there is a very delicate balance to achieving the right incentive systems for change.
“Let’s be very realistic, harmonising our thinking around the necessary transition will require a level of global collaboration we have never seen before,” she says. “Considering the global political context right now do we really think this is realistic? There has to be a dose of realism. We can’t afford to stop but this is another piece of the honesty jigsaw. The likeliness of meaningful progress is not very high right now.”
Laud advocates asset owners establish their own value statement and contribution in the context of that awareness.
“You will contribute in the way you can but be fully aware this might not be enough to shift the journey in the global transition,” she says. “Let’s not claim the asset management industry can save the world. It’s not our purpose statement either.”
In this context she says systems thinking is important in understanding the role of individual actors.
“We can do a lot because the capital allocation decision has a big role to play. But the fundamental purpose of the industry is to provide solutions for clients to meet their financial needs, fullstop.”
This story is part of a series unpacking the CFA Institute’s paper Net zero in the balance: A guide to transformative industry thinking.
For more in the series visit Decisions to enable net zero investing.
Published in partnership with MFS Investment Management.
Simultaneous global challenges such as inequality, environmental degradation, financial instability and fragile supply chains are challenging contemporary capitalism’s ability to cope. MFS Investment Management president Carol Geremia says it is time to consider a new approach to build resilience and ensure long-term sustainability in markets and societies.
The neoliberal economic and political systems that have underpinned economic growth for decades are today being challenged by a series of simultaneous global challenges such as inequality, environmental degradation, financial instability and fragile supply chains.
Whether traditional capitalism is equipped to address these human, social and economic polycrises, or if a new approach is required to build resilience and ensure long-term sustainability in markets and societies, is a fair question.
“A problem becomes a crisis when it challenges our ability to cope,” says MFS Investment Management president Carol Geremia, in conversation with Top1000funds.com editor Amanda White.
Many of the issues emerging today are challenging contemporary capitalism’s ability to cope, Geremia said.
“A lot of it has to do with how capital is allocated and how we actually think about investing in all different ways across the globe and economies,” she said.
“The big, big challenge for us today is to consider what was fit-for-purpose historically is probably going to be very different going forward, and I think we really need to come together and think about how is the best way to allocate capital responsibly that actually does not only generate returns, which is what we are mandated to do, but that it actually does consider all the aspects of the systemic risks.”
While capitalism has contributed to wealth creation and wealth accumulation over decades, it has also driven greater wealth inequality. The top 1 per cent of US households account for about 30 per cent of the nation’s total wealth, while the bottom 50 per cent of households hold about 3 per cent of the nation’s wealth. In the past four years, 750 billionaires in the US have seen their wealth increase by 77 per cent.
Geremia said the genesis of MFS exactly a century ago was an attempt to democratise investing “to ensure that the markets were broadened out and accessible to all types of investors, not just the people that had all the money”.
“That history has taught us a lot of lessons that can be applied today as we think about tackling all of these monumental issues,” she said.
Geremia said it’s “really paramount” that investors think about ensuring that the capital they commit not only helps people to retire and grow their wealth, but is committed for long enough so that companies can “do good things, to actually take a stakeholder view and broaden out how they think about generating their own returns”.
“And so again, the opportunity is huge to make sure that we sort of adjust to the growth of taking so much risk that we do today, and make sure that we protect the public markets, we protect the end-investors as we put money to work,” she said.
A case in point is ESG investing, which can be challenging for asset managers because risks such as climate change are complex, forward-looking and require views over multiple time horizons.
They are unlikely to be solved by traditional ways of viewing investment and portfolio theory, and Geremia says “you can’t do it under the measurement system we have today, which is to beat benchmarks over short periods of time, and it’s almost at highest return at any cost”.
“The system is telling us right now, no, that’s not good enough,” she says.
“We’ve got to not only generate the returns over long periods of time, as investors would expect, but we’ve got to extend our time horizons as we commit capital long enough for companies to really do great things and invest and innovate.”
The concept of shareholder primacy, established by Milton Friedman, and “if the corporations are committed to maximizing returns for shareholders, then everybody wins” is in fact “cracking in a lot of different ways”, Geremia said.
“The opportunity is enormous for us to, what I call, play a bigger game and really think about new allies that we haven’t necessarily used in the past to leverage the change in the transformation and policyholders, regulators, our competitors, our voices in industry, to really say what do we need to be fit for purpose going forward?” she said.
Stewards of other people’s money really need to step up and constantly evolve as leaders if they are going to effectively navigate the complexities of capitalism and the poly crisis in these interconnected challenges that investors are facing.
“The first thing I would say is we can’t do this alone, and we know it, and that’s why I’ve been incredibly inspired by leaders in the industry that are already taking this forward in so many different ways,” Geremia says.
“The first and foremost for us, and along with others in the industry, is the objectivity, and that’s why using academics and working with academics to actually really test our theories and test our thinking, and is it fit for purpose?”
“But…how are we going to measure success? If we really want to get at sustainability and the systemic risk that we know is growing massively in the system, and yet it’s so important for us to be held accountable and to measure performance and results, how do we bring these things together and change the way we’re showing up and the way we’re measuring success and value?
“I think we could get at defining that in very concrete ways.”