The United Kingdom’s Universities Superannuation Scheme (USS) the £65 billion pension fund for 390,000 university staff spread across 350 universities is investing in inflation-linked emerging market bonds to profit from developing economies higher bonds yields and levels of inflation. Not part of the mainstream JPMorgan universe, this small subset of bonds is issued by sovereign governments in local currency and indexed to local inflation.

The allocation has returned 15 per cent on an annualised basis over the last three years feeding into USS’s wider emerging market sovereign bond portfolio which includes local and hard currency investments alongside the linker allocation.

“We have identified an interesting seam that is not considered by mainstream index providers or our peers,” says Mirko Cardinale, USS’s head of multi-asset allocation since 2015 and head of investment strategy since 2018.

Since 2016, when emerging market pessimism coincidentally made local currency investment cheap, Cardinale has overseeing the growth of the linker portfolio to 1.2 per cent of total assets under management where it sits in an increased 5.5 per cent emerging market sovereign bond portfolio, currently overweight its 3 per cent benchmark, in a transformation of the strategy from a tactical allocation to one backed by an articulated investment case.

Its appeal lies in the many strings to its bow so that if one element doesn’t pay off another likely will. Higher yields than in developed markets, plus higher inflation and foreign exchange appreciation on the back of strong economic growth in these economies, all goes into the return mix. For example, real bond yields in Mexico and Brazil where USS has its largest linker allocation hover around 3-4 per cent in contrast to the low or negative yields in many developed economies. Returns are also lifted by Mexico and Brazil’s higher rate of inflation, although Cardinale points out inflation ranges here have grown narrower in recent years compared to the past.

Exchange rate appreciation is a long-term driver, but should it go the other way and currencies fall, investors still get the benefits of high yields and the inflation link, creating a nice buffer against any depreciation.

“The linkage with inflation is interesting because it means we are protected in case of macro-economic instability. There is also a bit more protection from depreciation of the exchange rate if you are invested in an inflation-linked bond rather than a nominal bond. Even if there is a depreciation in the exchange rate, it can be absorbed because you are receiving a high and inflation-adjusted running yield,” he says, cautioning that the strategy isn’t without risk.

“Inflation-linked bonds do carry risk. Namely that there is political or economic instability leading to outright defaults or a large depreciation in the exchange rate.”

But that doesn’t dent his enthusiasm for the allocation and resulting frustration that investment is restricted to emerging economies which issue linkers, and not all do. Since 2015 USS has diversified the portfolio beyond Mexico and Brazil to new allocations in Columbia and Uruguay (a country he says is more stable than Latin American peers but with higher inflation and higher yields) South Africa, Russia and Turkey but he’d like more.

“There is very little Asian representation. We hope Asian countries such as China and India will issue linkers going forward although, even without them, you can still achieve sufficient diversification.”

USS divides the whole emerging market bond portfolio between internal strategies and three external mandates. Of this, it manages the local currency linker allocation itself. The fund uses its own foreign exchange and bond valuation models to identify different sources of alpha then builds a portfolio that blends the two in a process informed by an extensive network of third-party research providers, expertise from the internal equity team and leveraging insight from its managers. Running the strategy internally makes it cheap and means most of the costs are just trading costs, although Cardinale says it is still more expensive than a mainstream developed market bond strategy. USS’s total investment costs as a proportion of the scheme’s assets under management were 31 basis points (bps) in 2017/18 and have reduced by 16bps since 2013/14.

Trading costs are also limited by the fact the strategy is buy-and-hold and doesn’t require much change.

“It is about identifying the right countries and the right assets and investing on a buy-and-hold basis,” he says.

All being well, he seeks to hold linkers to maturity which is usually between 5-7 years, or out to 10 years. Although Brazil and Mexico have issued 30-year linkers most more illiquid emerging market economies don’t issue long-term real bonds, so don’t have long-term inflation-linked bonds either.

Another reason the strategy is run in-house is the dearth of asset managers with a consistent track record in the space.

“Many emerging market debt managers allocate to these assets on an opportunistic basis, but it is uncommon to run emerging market inflation-linked mandates. There was some interest in the past but there isn’t much now,” he says.

He attributes this to a lack of demand for inflation-proofing strategies from institutional investors in today’s benign inflationary climate.

“If investors aren’t worried about inflation, they will neglect the asset classes that give interesting inflation protection.”

In contrast, USS has a keen eye on inflation because its liabilities are indexed to inflation. A worse-case scenario from a solvency position for the fund would be stagflation, low growth and poor equity performance, he says.

“Inflation is important to us and if there is a big jump in global inflation, emerging markets are likely to share in that.”

The strategy is in no way a replacement for poor yielding developed market fixed income, or more specifically gilts which USS uses to hedge its liabilities. The process of evaluating the yield, income, growth and valuation components of emerging market debt result in very similar, and often higher returns, than some equity markets.

“Emerging market debt is more comparable to equities than core fixed income. The return prospects are like high yield or investment grade corporate bonds. Add the local currency allocation and it does even better,” he says adding that despite its similarities with equity, it is also an important source of diversification away from equity where expected returns are stretched.

USS doesn’t hedge the local currency allocation unless it needs to on a temporary, tactical basis that could include navigating short-term volatility around an election. But rather than hedge currency risk during recent periods of volatility in Mexico and Turkey, the fund maintained its holdings but safeguarded against the volatility by using sovereign credit default swaps to offset losses on the bonds.

“We can tactically hedge currency risk, but we wouldn’t do it on regular basis as this undermines the return advantage of real exchange rate appreciation and the interest rate differential,”he says. In another indication of his preference for local currency exposure, the benchmark is split 50:50 between hard currency and local currency, but the actual allocation is skewed towards local currency.

Inequality is overwhelming and the rules of the economy have to change.

“If we don’t heal the fractures of today’s workforce that have been caused by the current model of greed, we will see even greater inequality in years to come,” said Sharan Burrow, general secretary, International Trade Union Confederation.

“The consequent threat to economic and social prosperity can only increase the breakdown in support globalisation, deepen the age of anger and continue to undermine returns from our own investments.”

Burrow followed this up with a blunt warning that failure to understand and address social and environmental risk goes well beyond the potential damage to the reputation or share price of a company or an investment house.

“Decades of such behaviour is now undermining global economic security. An apology for failure won’t fix systemic social and environmental risks. We need to change the rules of the global economy.”

Burrow told conference delegates there were several lenses that could usefully analyse the impact of pursuing maximum returns at any cost based on the narrowest definition of fiduciary responsibility.

“Ultimately, the impact of such behaviour is proving to undermine long term sustainability with human, environmental and indeed investment costs that cannot be justified.”

Inequality is one lens, Burrow said, at the Australian Council of Superannuation Investors’ annual conference.

“Inequality is now recognised as a global risk yet the model of globalisation the world has pursued is itself a model of inequality by design.”

Working in the shadows

The global workforce is around three billion people, she told her audience. However, on her numbers, up to 60 per cent of them are working in the shadows – the informal sectors of all economies.

“It’s a sector of desperation with no rights, no minimum wages, no social protection – no rule of law,” she lamented.

“Women and young people dominate this sector in large numbers and new business models are emerging with the use of digital platforms are adding to these numbers.”

Worse, she went on to say, modern slavery is also growing with more than 30 million workers trapped in unacceptable conditions.

Burrow told the audience that informal work and modern slavery are increasingly found in the supply chains of multinational companies which were already a dehumanising environment with low paid, insecure and often unsafe work.

Most damningly, the ITUC head said investments at home and across entire international investment portfolios are implicated in violations of fundamental rights even slavery.

Climate change is another lens.

“Scientists are again raising the alarm. In essence we have just over a decade to stabilise the planet. Every part of our economy must shift – energy, production, construction, transport and services,” she warned.

Asked how business leaders felt about this, Burrow said capitalists are worried; they’re seeing that their business model isn’t sustainable.

But she drove home the point that there is a “bit of hypocrisy as well” – those same chief executives will hire lobbyists to push their cause through associations.

By flowing into corporate lobbying, she argued, dollars are essentially going against sensible regulations, against policy, against government intervention and are actually working against everyone’s interest.

“I don’t know of anyone who hasn’t and couldn’t make money from investing in companies that are about decency, about human rights and about sustainability,” she said.

To this end, Burrow has called for a new “social contract’ between companies and their workers underpinned by a new “Universal Labour Guarantee” and urged investors and corporations to make it part of their core business.

Key to the social contract are measures to ensure a just transition for climate and technological shifts.

Further, to help battle inequality, insecurity and a smooth  transition to a carbon-free future, Burrow wants businesses to hold a “social license to operate” such that they pay tax in each country of operation, that they have an employment relationship with those they depend on for doing the work that earns their profits and that they contribute to social protection.

“Equally we expect governments to mandate due diligence for all business to mitigate violations of human and labour rights.”

Finally, Burrow turned her gaze to global monopolies like Amazon that she argued exposed the failure of competition policy.

“Yet no effective due diligence is carried out by investors who are assisting the massive expansion of monopoly corporate power,” she noted.

 

 

As the director of the Responsible Asset Allocator Initiative (RAAI) at New America, I am pleased to launch the ‘2019 Leaders List: The 25 Most Responsible Asset Allocators.’

The Leaders List report, developed in partnership with the Fletcher School at Tufts University, analysed $21 trillion in sovereign wealth fund and government pension fund assets around the world to identify 25 leaders and 25 finalists that set a global standard of excellence in responsible, sustainable investing. A 1 per cent allocation from this group of investors would unleash $200 billion per annum to finance renewable energy, sustainable infrastructure, clean water, healthcare and education.

The RAAI provides a barometer of how the world’s largest financial actors are changing their behaviour to address the planet’s greatest challenges. The intense competition for inclusion on the 2019 list demonstrates that sophisticated investors are embracing a broader definition of fiduciary duty and, increasingly, adopting environmental, social and governance considerations into their portfolio decision-making.

The world is shifting toward more socially aware and environmentally friendly investment practices and the list highlights a powerful group of investors that are leading the charge. Increasingly, the asset allocator community is recognising that investing responsibly and sustainably is a better way to optimise returns, reduce risks, and identify opportunities for future growth, all while aligning portfolios with broader social and environmental concerns of stakeholders.

Highlights of the 2019 Leaders List from the top 25 include:

  1. Canada again tops the list with five leaders; Australia/New Zealand, France and the US are next with three leaders each (the US leaders are all from California)
  2. Europe accounts for 40 per cent of total leaders (including investors from Denmark, France, the Netherlands, Norway, Sweden and the UK)
  3. Asia has two leaders, one each from Japan and Malaysia
  4. Africa has one investor on the leaders list.

Further highlights of the Leaders and Finalists from the top 50 include:

  1. Australia/New Zealand, Canada and the UK dominate the top 50 with seven investors each, followed by the US with six investors, the Netherlands with four and Denmark with three.
  2. The top 50 is diversified by four investors from Asia, one each from Africa, Central Asia and Latin America, and one multilateral pension fund.

Researchers expanded the scope of coverage in 2019, evaluating 471 asset allocators and rating 197 of them, up from 121 ratings in 2017. The ten core principles for benchmarking funds remained the same, but the number of ranking criteria almost doubled, raising the bar for the 25 highest scoring funds that were selected for inclusion in the list: our 10 core principles span ESG disclosure, integration, implementation, levels of partnership and adoption of global standards.

Funds ranked 26-50 were recognised as finalists and nine new funds were selected for the Leaders List in 2019. AUM of the leaders increased by $1 trillion dollars in 2019, rising to $5.9 trillion from $4.9 trillion in 2017, indicating that an increasing number of the world’s largest and most sophisticated investors are considering social and environmental risks when deploying their capital.

The total assets of the Leaders List funds are larger than the combined GDP of 145 countries and 44 times larger than the total loans and disbursements made by the World Bank Group in 2018.

The Leaders List in alphabetical order is:

Alberta Investment Management Corp. (AIMCo) (Canada)

AP Funds (Sweden)

APG Groep (Netherlands)

Australian Super* (Australia)

British Columbia Investment Management Corp. (Canada)

Caisse de dépôt et placement du Québec (Canada)

Caisse des Dépôts et Consignations (France)

California Public Employees’ Retirement System (CalPERS) (USA)

California State Teachers’ Retirement System (CalSTRS)* (USA)

Canada Pension Plan Investment Board (CPPIB) (Canada)

ERAFP (Etablissement de Retraite Additionnelle de la Fonction Publique) (France)

Fonds de Reserve pour les Retraites* (France)

Government Pension Fund – Global (Norway)

Government Pension Investment Fund* (Japan)

Khazanah Nasional Berhad (Malaysia)

Strathclyde Pension Fund* (UK)

New Zealand Superannuation Fund (New Zealand)

Ontario Teachers’ Pension Plan (Canada)

PensionDanmark* (Denmark)

PGGM (Netherlands)

Public Investment Corp. (South Africa)

RPMI Railpen* (UK)

UC Regents Investment Funds* (USA)

United Nations Joint Staff Pension Fund (Global)

Victoria Funds Management Corp* (Australia)

* New addition to the Leaders List in 2019

 

Scott Kalb is the founder and director of the Responsible Asset Allocator Initiative at New America. He is chair of the Sovereign Investor Institute, and previously was the CIO of the $130 billion Korea Investment Corporation

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Iceland’s ISK900 billion ($7.5 billion) Lífeyrissjóður Starfsmanna Ríkisins (LSR), the Pension Fund for State Employees and the Pension Fund for Nurses is poised to invest more overseas as capital controls introduced in the wake of Iceland’s 2008 banking crisis finally ease.

LSR currently only invests 30 per cent of its assets abroad, the bulk of which is in listed public equity. But this will grow to 40 per cent, increasing to 50 per cent longer-term, and include boosted allocations to listed and private equity, credit and real estate. It could also include a new allocation to foreign infrastructure too.

“Our main goal in the coming year is to increase investments abroad and move from domestic assets to foreign assets,” says CEO Haukur Hafsteinsson who recently announced his plans to retire after 37 years at LSR which invests on behalf of some 31,000 active members and 22,200 retirees, making it the biggest pension fund in the tiny Nordic country with only 300,000 inhabitants.

The urgency to invest more overseas comes against a backdrop of LSR’s over exposure to Iceland’s economy ever since the country’s pension funds rode to the rescue during the 2008 financial crisis. Reckless lending by Iceland’s three biggest banks, Kaupthing, Glitnir and Landsbankinn had unravelled, exposing liabilities ten times national GDP that plunged the country into a financial meltdown. Pension funds recapitalized Iceland’s stricken banks – although unlike in other countries the big trio where allowed to fail – and poured new investment into listed companies.

It wasn’t something they were given much choice about. Another consequence of the crisis was capital controls, introduced to stop the Icelandic króna’s freefall but which also stripped pension funds of their ability to invest more overseas, says Hafsteinsson.

“At that time, we weren’t allowed to buy any foreign currency,” he recalls. “The only thing the government allowed us to do was reallocate what we already had in the portfolio. We couldn’t make any new foreign investments.”

In a sign of Iceland’s recovery, capital controls were eased in 2015 and finally lifted last year.

LSR’s overseas equity allocation is currently split between several fund investments, divided between index funds and active managers, and one segregated portfolio with Morgan Stanley. Hafsteinsson hasn’t decided which, if any, of the existing equity mandates or strategies will get a boost from the new allocation. Whatever he decides, he emphasises LSR will take its slowly, building out the allocation in-line with cheaper equity valuations and the krona’s exchange rate.  

“We will increase what we have abroad slowly, mainly through European and US- based managers. It will probably end up a mix of staying with the same managers and going with new ones.” All the Icelandic allocation is managed internally by a five-strong asset management team; all the overseas allocation is outsourced.

The increased foreign allocation will allow the fund to pare back its domestic equity portfolio. Although only 12 per cent of the fund is invested in Icelandic companies it amounts to a huge exposure: Iceland only has 20 listed companies and LSR owns around 10 per cent of each.

“We need to diversify,” says Hafsteinsson. “Our current exposure goes against our investment policy.” 

Diversification would also be good for Iceland. The Icelandic pension system is one of the largest in the world accounting for 150 per cent of GDP meaning pension fund investment risks creating bubbles in the equity and bond market. Something flagged in a report last year on the economic and competitive risks associated with the size of the country’s pension funds, headed by Gunnar Baldvinsson, CEO of ISK185 billion ($1.7 billion) Almenni Pension Fund.

Suggestions included new rules on ownership policies and funds increasing their foreign allocations. LSR’s domestic allocation is divided between government bonds (13 per cent) loans to members (14 per cent) and domestic equities (12 per cent), as well as small investments in various municipal and financial institution bonds and an allocation to local private equity and real estate.

However, LSR’s equity exposure hasn’t done returns any harm. Iceland’s stock market fell 85 per cent during the crisis and the cheap buying opportunities that ensued have proved profitable.

“Pension funds were amongst the only financial institutions in Iceland in a strong position at the time. It was a good opportunity to buy equity,” he says. Today this opportunity has waned. Although ten-year domestic equity returns are strong, one, two and three-year returns have lagged, says Hafsteinsson. Last year the fund returned 5.6 per cent.

 

 

The big question for the big institutional investors is whether Asia, considered the growth engine for the world, can catch up with the ESG movement that is sweeping throughout developed economies.

While Asia has paid a heavy price for its rapid economic growth, Rohit Sipahimalani, Temasek’s joint head of investment, portfolio strategy and risk, said the institutional investors would become a catalyst for a quicker adoption of ESG principles in Asia.

“The level of underdevelopment in the region is a challenge to ESG adoption but by the same token, I think if we get things right, the incremental impact can be very significant,” he told delegates at the Milken Institute Global Conference.

Investing in emerging markets is the best way international investors can instigate change. Yet, while sovereign wealth funds like the $235 billion Temasek will play a role in sharpening governance standards, governments have already faced public pushback on bad environmental policies.

“If you look at Delhi people are demanding change. And China’s policymakers are voicing concern because ultimately people will not accept the polluted skies in Beijing,” he said during a panel discussion.

“I think it will take time but the pressure is there and ESG will have a significant impact once this part of the world starts tackling these problems.”

What’s been interesting to David Atkin, the chief executive of Australian industry fund Cbus Super is how quickly Asian markets are moving on ESG. They are now introducing stewardship codes and have increased responsibilities for companies and investors.

“In Australia we pat ourselves on the back and claim to be early adopters but in a way we have been relatively static in recent times.

But that is changing. Regulatory demands have intensified, he said during a panel discussion.

Atkin noted that recently, all three of Australia’s financial regulators – APRA, ASIC and the central bank – have accepted the significance of climate change risk to monetary policy, financial stability and the global economy.

“So the idea of greenwashing your way through this just won’t cut it,” he said.

Populist view of standards

This view jibes with fellow panelist First State Super CIO, Damian Graham, who said the damaging revelations of widespread misconduct at Australia’s banks – because of cultural failure – is relevant to everyone around the world.

“It comes back to the populist view and certainty, the community’s expectation is that standards of corporate behaviour must be raised.”

Graham said while ESG stewardship is critical to long term value creation, so too is the way the fund engages with the assets and companies it owns.

“This goes to the issue of when we invest in China or in Asia and go through the check list of what’s important, the most critical item on that list is can we make money as a minority investor.

“We’ve gone through the process for China and we think we can make money in a managed way in any private and public markets.

“Now, we are going down that path of establishing an exposure that we want to build on.”

Graham is convinced China and emerging Asia are very prospective in the long term – that patience will yield positive cash flows and liquidity.

The Aussie-based CIO also told the audience that First State Super is committed to a culture of diversity and inclusion – particularly in this era of global disruption which has shown that businesses have failed to infuse their people with purpose and vision.

“Clearly, competitive advantages can move very significantly so what’s important is how resilient the business is when it comes to understanding its competitive advantages and how they are evolving,” he added.

Ultimately, Graham explained, long term value depends on the flexibility and resilience of managers who can drive corporate strategy and evolve though time.

“That sounds pretty obvious but it really has structured the way we think about how we manage the portfolio and interactively engage with assets and the companies we own.”

Strategy changes: digital disruption

Despite Asia being viewed as the growth engine of the world, the underlying concern for panel members is the profound implications of digital disruption.

Sipahimalani said Temasek’s venture capital fund switched from later-stage, to early-stage investments, in a bid to secure business segments with huge break-out potential.

But, as he told the audience, the fund is not in early-stage venture capital investments for the early high returns alone. But rather, for the connectivity throughout the value chain.

“It tells you about disruption in mature companies.”

This point was taken up by Graham who warned connectivity should operate right across a portfolio. “I think there are great insights across portfolios that tend to get lost in institutions as investment activity becomes silo-ed within funds.

“This is something we are very focused on in terms of the assets we own, the way we are investing and the way those assets are going to be disrupted in future.”

With the convergence of industries Sipahimalani has become more thematic in his investment approach requiring more teams to work together. When he valued Go-jek, the Indonesian logistics start-up, he had his technology, transport logistics and financial services teams all working together.

“The problem is you have to have internal systems and incentives to make that happen. The flip side is it can slow you down.

“We don’t have the answers yet and it’s not easy,” he conceded.

Sipahimalani takes heart though, from the fact that this style of investing is now essential.

 

Pension funds looking to change behaviours towards a long term investing orientation could take heed from foundations in how they report to their boards about performance.

The $3.5 billion Carnegie Foundation doesn’t report quarterly numbers and at its board meeting it doesn’t discuss performance at all, according to CIO Kim Lew speaking at the Milken Global Conference in Los Angeles.

“We never provide a quarterly number to the board, the shortest time frame is a rolling one year performance number. No one has ever asked me about quarterly performance,” she said.

“We don’t discuss performance at board meetings and we are benchmark agnostic. When I present at board meetings I only ever use 10-year rolling numbers. This focuses the conversation on the long term.”

But for some investors there are practical reasons that hinder such practices, delegates at the conference heard.

Hiro Mizuno chief investment officer of the $1.6 trillion GPIF of Japan said that the media in his country puts pressure on the fund to report performance on a quarterly basis.

“From the day I started as CIO I was advocating we end quarterly reporting. But the media says that’s going backwards on transparency. I argue transparent for whose purposes? Quarterly reporting doesn’t mean much,” he said. “It took me four years to convince everyone not to have a quarterly media meeting and we have just stopped that, but we still do quarterly reporting.”

Having said that the GPIF, which has a 100-year time horizon, is doing plenty to align itself with the long term. The fund owns 10 per cent of the Japanese equity market and 1 per cent of global equities and acts as a universal owner.

“We own the capital markets, and we can’t beat ourselves. So we look at it as being a universal owner,” he said.

But size comes with some disadvantages, he says. In the fourth quarter of 2018 the GPIF incurred a loss of $150 billion.

“People think it is a luxury managing that amount of money and not having to pay out for 20 years. Our role is to make sure the portfolio is sustainably managed over the next 25 years,” he said. “All of us are universal owners, no one can make enough alpha to cover the loss experienced in a systemic crisis like the GFC so we need to work to make the financial system more sustainable. It is easier to communicate what we’re trying to achieve by asking managers to integrate ESG.”

 

World Bank and GPIF partnership

The GPIF recently teamed up with the World Bank in a partnership that will see its fixed income managers accessing the World Bank’s green bond issuance.

The World Bank was the first to issue a green bond, back in 2008, and now it is a $170 trillion asset class.

“ESG is a bit harder in fixed income so we created a structure where all managers have access to World Bank green bond issuance,” Mizuno said. “Making it more explicit is a way to communicate we want ESG in investments.”

Jingdong Hua, the World Bank Treasurer who also looks after the World Bank’s $27 billion pension fund, says collectively overcoming systemic risks should be a focus for investors.

“Sustainability is in our DNA. We are steering strategic conversations and using our balance sheet to steer the conversation towards that.”

Hua said that sustainability is a global issue that should be addressed collectively.

“800 million people don’t have enough food and two billion people don’t have access to clean water. These are relevant numbers to solve the SDGs. Sustainability impacts all of us,” he said. “In our pension fund we are incorporating ESG in everything including private equity. We have to turn SDGs into attractive asset class and look at how to collectively make a difference.”

He pointed to the green bonds as an example of the power of change.

“We are committed to asset class creation. After 150 green bonds issues we can create a standard, and if can share that with a larger community that’s a great opportunity. Asset owners and capital markets have to work with developing countries.”

Carnegie’s Lew said the investment committee picks long term issues it deems important, such as demographics, contagion or ESG, and then looks at how to invest including picking managers which are thinking about those issues. But she was underwhelmed by her ability to impact the market.

“Historically we have made more of our money in manager selection that in asset allocation, have stayed stagnant in asset allocation. We have the power to choose managers but not to change the market.”

The GPIF’s Mizuno encouraged her, and other smaller investors, to be empowered to make a difference.

“If smaller funds don’t think they can make a difference then together we won’t make a difference. We have to share the idea that we can all impact together. We pay too much attention analysing things we won’t be able to know such as what interest rates will be in 10 year’s time. But we can look at long term issues.”