Risk should be defined as the inability to meet retirement income goals, so investors and their managers should forget alpha and other “distractions”, according to co-chief executive of Dimensional, David Booth.

Retirement income should be the key focus of every investment manager, according to David Booth, founder and co-chief executive of Dimensional Fund Advisors.

According to Booth the entire investment industry should be focused on risk being defined as the inability to meet retirement income goals.

“Concepts of, for example, alpha are distracting; you want to focus on the goal,” he says.

“It has to be the big conversation in investment management, trying to improve people’s lives. Retirement has got to be front and centre.”

Dimensional puts this philosophy into action and has a conversation with all employees twice a year about retirement.

“As an employer, we talk about lifecycle financial needs and the importance of life insurance. It is so mismanaged. We don’t want it to be a case of no shoes on the cobbler’s kids, so we asked ourselves ‘what are we doing for our own employees?’.”

Key to understanding retirement, and how the industry can serve investors, is distinguishing between wealth and income, with the focus shifting to income.

As an example, he says the rates on the so-called least risky investment, like short-term fixed income, have been shown to have widely variable rates in the three decades since Booth started Dimensional – from 15 per cent to 15 basis points.

“In terms of retirement income, bank bills look risky,” he says. “Your risk is your consumption bundle.”

Dimensional has been an advisor to the recently launched S&P Shift to Retirement Income and Decumulation (STRIDE) index series, which is a multi-asset class solution designed to transition from growth assets to a hedged stream of inflation-adjusted retirement income based on target retirement dates.

Dimensional worked with S&P Dow Jones Indices to develop the glide path, inflation hedging and duration hedging techniques used in the indices.

In the paper, Introducing the Stride Index Series, Booth’s example of volatility in short-term nominal bonds is explained further.

It shows the difference in return volatility by expressing the results in wealth units versus income units, and does this by comparing short-term nominal treasuries and treasury inflation-protected securities (TIPS) bonds.

Measured in wealth units, short-term nominal bonds show low volatility, and the real-bonds TIPS portfolio is more volatile.

But by looking at the returns in income units, by looking at the change in the cost of $1 annual cash flow for 25 years, the reverse is true.

It’s switching the focus from wealth accumulation terms to income terms that is key.

“This is the first time we’ve said this is how you should do asset allocation. Given the notion of a goal, then asset allocation becomes relative,” he says.

And Booth says in order to evaluate how good a job a participant is doing, they needed a benchmark.

Each S&P STRIDE index consists of an allocation to a group of indices covering global equity, global fixed income and US Treasury inflation-protected securities (TIPS).

Allocations are determined by five-year increments of target date years to cover a full life cycle of accumulation, defined as working years, and decumulation, defined as retirement years.

“The goal for many people saving for retirement is to maintain a standard of living in retirement. For these individuals, one relevant risk to manage is the uncertainty of how much retirement income their balances can afford. This uncertainty is driven by changes in interest rates and inflation,” Booth says.

“The S&P STRIDE index series represents a significant step forward in the design of target-date indices, because they manage relevant risks facing participants saving for retirement. I believe these indices provide plan sponsors, consultants, and financial advisors with a better benchmark to understand how well prepared plan participants are to maintain their desired standard of living in retirement.”

The thinking behind this has been driven by Nobel Prize winner, and resident scientist at Dimensional, Robert Merton.

He says the focus should be on goals-based investing, and consistent with Booth’s comments, the right goal for most people is an inflation-protected income at retirement, not wealth accumulation.

It’s something Merton talks about with a passion that has supported a 45-year career researching risk and lifecycle investing.

In his opinion, the retirement management industry should change its language, and techniques, to focus on income, and to look at earnings for spending and lifestyle.

And that’s exactly what Dimensional is doing.

“Other firms have different objectives,” says Booth.

“We are never going to be the biggest manager, but I hope we can be one of the most important.”

Dimensional, which has a number of academic advisors including both Eugene Fama and Kenneth French, is open to innovation and the application of finance ideas.

“Financial science can be used in ways we haven’t even thought of yet. We want to be open to that,” he says. “The performance measurement industry has only been around for 15 years and is on a continuum of improvement. The idea of longevity insurance, and applying insurance to mortality, is an important idea.

“I’ve built a career out of trying to get people to think realistically about what can be achieved. $1 in the stock market gets the average stock-market return minus costs; it’s simple math,” he says.

“Wealthy people can afford to get advice, but how do you make these ideas and technology accessible?”

 

For more information see

Research introducing the S&P stride index series

Sweden’s SPP Livförsäkring, one of the country’s biggest life and pension providers and part of the Norwegian Storebrand Group, is shifting its allocation in favour of more illiquid assets to escape enduring low interest rates.

The fixed income allocation at the fund will be reduced and assets portioned to private debt markets in Europe and the US in long-duration loans.

“This suits our liabilities and the long-term impact of Solvency II,” explains Erik Callert, chief investment officer at the Stockholm-based provider, in reference to the new capital requirements which govern insurers and result in “every investment having to now be analysed from an economic and a regulatory perspective.”

Callert describes the exodus of banks that used “to own” the private debt market as a “great opportunity that we can take it on”.

SPP is in the process of choosing external fund managers to run the private debt allocation in a departure from its usual in-house management via parent company Storebrand Asset Management.

The move into the loan market is a consequence of the challenge of meeting SPP’s guaranteed returns.

Today this sits at 1.25 per cent, a long way from the guaranteed returns of the 5.2 per cent SPP promised its policyholders in the late 1990s.

Low interest rates have forced the fund to take on an element of risk, where it has found illiquidity pays off.

“We saw it first in our real estate exposure that earned high and stable returns. We are looking at infrastructure now, and there is a lot of demand for infrastructure in Europe particularly.”

SPP offers two main savings products: a SEK50 billion ($5.8 billion) growth portfolio without guarantees, and the legacy SEK90 billion ($10.5 billion) portfolio that Callert runs.

In the legacy portfolio the assets are split between an 80 per cent allocation to fixed income, a 10 per cent equity allocation and a 10 per cent allocation to real estate, managed internally at Storebrand Asset Management.

The 10 per cent equity allocation, steadily reduced by 40 per cent in response to the financial crisis and a subsequent deliberate strategy to diversify risk, now has a quarter in externally managed private equity (where Callert also likes the “illiquidity risk premia”), a quarter in emerging markets, and the balance in developed markets.

The public equity allocation has an ESG enhancement that means the fund only invests in “top performing” stocks derived from in-house sustainability ratings.

In what Callert describes as a “unique selling point” a team of eight Storebrand analysts produce a sustainability rating for companies listed in the MSCI All Country World Index according to their ESG, financial robustness and how well those corporations are positioned for the future.

The fixed income allocation is divided into thirds, portioned to government-guaranteed bonds, asset-backed loans like Swedish mortgage bonds, and corporate bonds. Here the allocation is split equally between Swedish corporate loans and northern European corporate loans.

“The portfolio has done very well since its inception in 2008 when we began our move out of equities into fixed income,” he reflects.

“But now returns from the portfolio are more difficult. We notice how spreads have narrowed over the last five years and we need to find alternative risk premia to fund our guarantees.”

The Future Fund, Australia’s largest and most sophisticated investor, has positioned its portfolio with material exposure to two asset classes that are currently out of favour with many other long term investors – private equity and alternatives. The Future Fund’s chief investment officer, Raphael Arndt, writes exclusively for conexust1f.flywheelstaging.com and explains the investment strategy.

 

In recent months financial markets have experienced heightened volatility.

These extreme market moves are to some extent a product of the global financial crisis and the policy responses that followed it. There is no reason to think this type of market behaviour will go away any time soon.

Volatility and market risk are facts of life for investment managers, and have been front and centre in our thinking at the Future Fund since we began in 2006.

In an effort to maximise returns over long time periods we have sought to build a portfolio that delivers good returns during periods of strong market performance while providing some risk mitigation during periods of weaker market performance.

Unlike many large pension funds, we don’t have liabilities to manage. We are simply focused on maximising returns for a given level of risk.

We have been careful to allow ourselves the flexibility to select the best ideas to contribute to this mission.

We have not set rigid composite benchmarks with static sector weightings, nor have we set a budget for the fees we will pay.

Instead we focus on maximising net returns and value for money within a stringent risk-management framework.

In seeking to maximise returns in a low-return environment that is susceptible to significant volatility, we have built a portfolio with material exposure to two asset classes that are currently out of favour with many other long-term investors.

Almost one quarter of our portfolio is currently invested in private equity and alternatives (which for our purpose can be thought of as hedge funds and alternative risk premia strategies).

Private equity

The Future Fund’s current exposure to private equity is around 10 per cent of the portfolio or A$12 billion.

In a low-return environment, strategies that give an investor access to true manager skill are extremely valuable.

Our program is focused on gaining access to very high quality investment managers that can apply their craft over a relatively long-term horizon.

It is particularly challenging to make reasonable returns in an environment where equity markets are falling, the cost of debt is rising and economic growth is lacklustre.

In this environment, managers who can actively improve a business or identify a great idea are particularly valuable.

Our investment process actively screens out managers that rely too greatly on market timing or use excessive leverage to generate returns.

Furthermore, private equity is the key tool through which we seek to access and profit from the innovation cycle and disruptive technologies.

This innovation cycle isn’t strongly correlated to listed equity markets.

The Future Fund does this through our significant multi-billion dollar exposure to venture capital, which has proven to be resilient through market cycles.

We recognise that many are put off investing in private equity because of high fees and poor alignment. These are issues we take seriously and spend significant time analysing and understanding.

We seek to back only managers that have appropriate terms and share an acceptable amount of the “alpha” they generate with their investors.

We support the Institutional Limited Partners Association’s efforts to improve the industry’s terms and increase transparency.

And we have rejected investing in some managers when their terms were weighed too heavily away from investors.

We have also developed a co-investment program which helps to provide us better insight into how our managers are creating value and also helps to lower fees overall.

We see ourselves as a true partner, aiming to share the insights that a A$130 billion investment program can bring across markets, coupled with an ability to provide capital on a nimble basis in a transaction time frame.

To put this in context, over the last 12 months we have completed more than a dozen co-investments alongside our private equity managers.

The insights from this activity have helped inform our wider investment activities – for example, which of our equity holdings are at risk of being disrupted by new business models.

Alternatives

The Future Fund’s allocation to alternatives is over 12 per cent, or A$15 billion.

This exposure is focused on diversifying our portfolio risk away from listed equities, credit and interest rate exposures.

Too many hedge funds don’t provide true diversification, and are simply expensive vehicles to access these bulk betas.

Any approach that allows the payment of high fees and agreeing to illiquid structures just to get what we could buy cheaply and in liquid form in public markets is bound to disappoint.

Over the past two years we have worked hard to refine our approach in this respect, and have significantly turned over our managers in this sector.

Our focus has been on identifying managers who can provide true uncorrelated returns and do so with reasonable fees and liquidity.

Like for private equity, we support the efforts of organisations such as the Hedge Fund Standards Board to provide balance in the investor/manager relationship.

And like for private equity, we pay significant attention to the terms we achieve.

Again, we have rejected managers whose terms are too rich, but also those that we believe are too dependent on strategies which provide us little more than exposures we already have more cheaply.

I am pleased to say that our efforts in this space appear to have been paying dividends during the recent market volatility, although it is too early to have a definitive view.

Results

It is easy to talk about the theory that our private equity and alternatives programs should provide appropriate returns while reducing overall portfolio risk.

What experience has the Future Fund actually had?

We estimate that the Future Fund has generated in excess of A$15 billion cumulative excess return through its actual portfolio allocation since inception relative to a simple portfolio of 60 per cent equities and 40 per cent bonds.

And we have delivered this outperformance while significantly reducing portfolio volatility relative to this comparator.

The benefit of our private equity and alternatives exposures is particularly evident when traditional public equity markets are less than accommodating, with recent months fitting that description well.

We will continue to work with selected managers who are genuinely skilled, are appropriately aligned with us, and who offer reasonable expected returns.

We believe the investment environment and the outlook for returns to asset markets will challenge long-term investors in the period ahead.

To not consider private equity and alternatives as a meaningful part of a long-term investment program would be to enter the current market environment with one hand tied behind your back.

 

Common sense must be applied to statistical data and rules-based investing should only be adopted with caution. Investors should prepare for the inevitable moment when the game suddenly changes.

“In theory there is no difference between theory and practice. In practice there is.”

Yogi Berra

In the aftermath of the financial crisis a growing sense of unease with mechanical rules-based investing techniques emerged, following the destruction of value in the portfolios of many carry managers, technical traders, arbitrageurs and quantitative stock pickers (among others).

However, in recent years, investor appetite for mechanical techniques has returned, with much excited discussion of “factor investing”, “smart beta” and “volatility control”. It is therefore reasonable to ask: can we invest by rules?

While financial markets have existed for hundreds of years, our understanding of market dynamics, and especially market crises, is surprisingly limited.

You would obviously be overly wishful in your thinking if you approached a meteorologist and asked them to create a model of hurricane formation based on the experience of one single hurricane. Luckily for meteorologists, in 2008 to 2009 there were 28 hurricanes, with the scramble for unused names reaching such underseen fare (in the English language world) as Fausto and Odile.

Fortunately for investors, financial hurricanes occur much less frequently than natural-world hurricanes, with few investors today having seen more than a dozen serious market crises in their working life. How can we hope to derive rules that might be robust in stressed market conditions based on a small sample of such experiences?

Prudish Victorians who were keen to avoid recounting the gory details of human reproduction often used to tell their children that babies were delivered by storks.

Just over 10 years ago a group of German academics “proved” that this idea had merit. They noted using statistical techniques that there was a strong correlation between the population levels of storks in and around Berlin with the number of home births.

They hadn’t lost their minds, they were merely keen to demonstrate the dangers of relying too heavily on statistical data without engaging common sense.

How often is common sense jettisoned in the world of financial theory with the notorious backtest? The “infinite monkey theory” holds that a monkey with a typewriter, given a sufficient length of time, will write out the complete works of William Shakespeare, even though they are hitting the keys of the typewriter randomly.

Given a large or infinite amount of monkeys this happens much more readily.

The point is that, by overwhelming likelihood, as soon as the monkey has written the last line of The Two Noble Kinsmen, what follows will be gibberish.

Similarly, with hundreds of researchers around the globe seeking to climb the academic ladder by finding apparently successful trading rules (or “factors”), investors must be careful to avoid relying on patterns that may prove no more persistent than the monkey that has apparently reproduced the works of Shakespeare.

The problem any investor faces is that they sit like a player at a board game, playing chess; but then the game changes and it’s snakes and ladders; once more and it’s backgammon; again, and it’s Monopoly.

Simply relying on how things were is at best of limited use: patterns emerge, are recognised, and disappear; systems emerge, are useful, and then their usefulness fades. Rules-based investors should prepare for the inevitable moment when the market “rules” suddenly change.

So while investors should be cautious when adopting rules-based approaches involving limited oversight, we are not arguing that all investment rules are worthless. Indeed, some time-tested heuristics include:

  • Don’t put all your eggs in one basket (diversification), and don’t rely on the same basket manufacturer (counterparty diversification).
  • Regularly rebalance portfolios in order to maintain a target allocation (in line with desired risk tolerance) and generate a modest rebalancing premium.
  • Seek to be contrarian: “be fearful when others are greedy and greedy when others are fearful” (Warren Buffett).

We might therefore conclude that rules, in and of themselves, are neither good nor bad; but it is important to understand the shortcomings of rules-based approaches and to distinguish between rules that are likely to be helpful and those that are not. Some sensible questions to consider when evaluating rules-based strategies include:

  • Is there empirical support over long time periods, across regions and market regimes, that the strategy is robust to minor variations in rule definitions?
  • Is there out-of-sample support? That is, has the rule continued to “work” after the publication of results, or has the effect been arbitraged away or proved to be a figment of data mining?
  • Is there an intuitive economic or behavioural explanation for the historical success of a given rule and a reason to believe that this effect will persist in the future?
  • Who is responsible for monitoring the ongoing efficacy of a given rules-based approach?

Rules can work, but we prefer rules-based approaches that are time-tested, are supported by a robust argument and where there is the possibility of evolution over time to reflect the changing rules of the game.

Matthew Scott and Phil Edwards work for Mercer.

With no precedent for delivering 4 per cent returns and economic benefit in a small economy, the strategic investment fund will play its strengths in evolving a strategy to invest a further €5.6 billion ($6.1 billion) across the capital structure and for the long term.

“Ireland is a small proportion of the global economy so we only have a small opportunity set,” says Eugene O’Callaghan, articulating the biggest challenge he faces shaping investment strategy at Ireland’s €7.6 billion ($8.3 billion) strategic investment fund (ISIF).

So far only a third of the fund has been invested in Ireland, yet the aim is for it all to be put to work in a duel mandate that brings commercial returns of 4 per cent alongside Irish economic benefit. Finding investments that meet the fund’s strict developmental agenda within Ireland’s shores isn’t easy and most of the fund is still sitting offshore waiting deployment.

“There remains €5.6 billion ($6.1 billion) to be invested. That’s a large amount of money that will need to be deployed over several years,” said O’Callaghan, director at the fund.

In 2014, ISIF was seeded from funds transferred from the remnants of the National Pensions Reserve Fund. At its peak this rainy-day fund had €23 billion ($25.2 billion) in assets, but the government used most of it during the financial crisis to bail out Ireland’s banks.

Assets waiting to be put to work in Ireland are “conservatively managed” in a global portfolio split between a 45 per cent cash allocation, a 13 per cent equity allocation with some option protection, 20 per cent in bonds and 21 per cent in alternatives including property, infrastructure and commodities.

“It is structured to make a contribution to the 4 per cent target, but not be depleted to any significant extent.”

It is all managed externally. It means O’ Callaghan’s team can concentrate on finding opportunities in Ireland where ISIF investments are split with flexible allocations between Irish assets that include water, public–private partnerships (PPPs), infrastructure, small to medium enterprises, food and agriculture, real estate, venture capital and private equity.

Co-investment is a key part of strategy with ISIF capital acting as a catalyst to draw other funds and asset managers into Ireland to invest alongside.

“Currently total investment size is running at around 2.5 times the ISIF commitment to such investments, thereby leveraging ISIF money into a much greater total investment program,” says O’ Callaghan.

Examples include a €500 million ($549.7 million) joint venture with KKR, the private equity firm, aimed at boosting housebuilding in Ireland; a technology and growth fund backed by China Investment Corporation targeting equity investment in software and clean tech in Ireland and China – the fund can invest in assets overseas as long as they have an impact back home – and minority PPP investments in schools and motorways also backed by Dutch pension manager PGGM.

ISIF invests directly and via fund platforms. With the large transactions, ideally with a minimum size of €10 million ($10.9 million), ISIF tends to invest directly. Smaller-value, but higher-volume transactions usually go through third-party platforms. Indicative of the smaller amounts currently being deployed at the moment, 70 per cent of investments are via platforms and 30 per cent are direct.

“We will grow this to a 50/50 split,” says O’Callaghan.

O’Callaghan has to navigate the fund through its tricky confines. If ISIF competes with other investors it runs foul of the ruling that its investment has to make an economic impact.

“Where is the economic impact if other funds can do the job just as well us?” he asks. “If lots of others are vying to invest, there is no impact from us.”

This proved a particular stumbling block when looking at Ireland’s PPP sector, originally tipped as prime investment territory for the development fund because of the economic slowdown and a lack of interest in the sector from other investors. As it happened, the economy recovered, other investors crowded in and ISIF had to retreat.

“We weren’t going to make an impact so we left it.”

It’s the kind of competition triggered by the Irish economy picking up and money starting to flow that makes finding suitable opportunities hard. Combine this with the development fund having scant protection from any downturn in the Irish economy because of its close linkage and the job becomes more difficult.

ISIF manages to diversify in such a small economy by spreading risk across durations, sectors, asset type and economic impact. It also finds it offers something other investors can’t in its ability to invest across the capital structure – from safe first security debt all the way along the risk spectrum to start-up venture capital.

“This could include equity in early stage companies, junior debt, infrastructure debt from the very safe to the speculative,” explains O’Callaghan.

The other ISIF advantage is that it can afford to tie up its capital for years. “We are able to invest for up to 30 or 40 years. It means we can offer long-term infrastructure or patient capital for business or projects.”

There is no precedent to follow in how best to deliver positive returns and an economic impact in a small economy.

“It is a big issue for us, that there is no textbook to follow,” O’Callaghan says, adding that although there are a small number of development funds with economic and social objectives targeting commercial returns, they are also recent.

For now ISIF is an evolving work in progress, with its first review planned in the second half of 2016.

“Strategy will evolve and be refined over time. The nature of investments will change,” he says.

Others will be looking on with interest.

So here we are, after COP21. Humanity will start acting in order to avoid global heating in excess of 2°C in 2100. The board has asked the question: how will you deal with carbon risk in the investment portfolio? The regulator is starting to show interest in this problem after the visionary speech of Mark Carney at Lloyd’s. Any ideas?

Not much of the climate conversation has so far been translated into changes in the policy and implementation of investment portfolios of large institutional investors. But the real world is already changing and the impact can be huge.

For example, the German utilities sector has seen a dramatic loss in power and value over the past decade as a consequence of the Energiewende.

The coal sector saw an enormous loss in value over the past year since large investors like the Norwegian Oil Fund started to move away from the sector. And according to Goldman Sachs, between 2015 and 2020 solar and onshore wind will add more capacity to the global energy mix than the US shale revolution did between 2010 and 2015.

Why carbon risk has been ignored

Although there have been good reasons historically to ignore carbon risk, the time has come to make conscious decisions around it. It is a major externality on the brink of becoming internalised. Bob Litterman argues that managing it is part of the fiduciary duty.

There are in my view four major reasons that no action has been taken so far:

  1. It is very hard to translate this rather abstract and “soft” problem into numbers and quantities that investors can work with.
  2. It is a problem with a long horizon – perhaps too long for many investors to deal with. Mark Carney calls this the tragedy of the horizon: important but not yet urgent.
  3. Carbon risk is not the only risk that on the long horizon will hit your portfolio – think of technological shocks, the ageing society, geopolitical risks and a long list of unknown risks that will appear but haven’t yet been noticed. How are we to integrate them all in a sensible way?
  4. Efficient market thinking keeps us close to market benchmarks and perhaps whispers in our ears “It’s already priced in, stupid!”

So here we sit. What can we do? I think it is time to lay the groundwork: both the board and the investment management organisation should be aware of the risk, understand it, evaluate it and start to monitor it. The groundwork is exploratory. It has to become part of the investment DNA.

I would not be surprised if the groundwork would take at least a calendar year. Actual mitigation of the risk on a large scale can be built later on top of the groundwork.

First steps

My idea for approaching this challenge would include both top-down and bottom-up strategies.

Top down

Start at the front end of the investment chain. Connect the people from the responsible investment department with the economists and the strategists.

Risk management should be involved. Ask them to together come up with a picture of how and where climate change risk may influence expected risks and returns. They can build on some of the excellent material by Mercer, Blackrock, Citi and Barclays, for example.

My high-level reading of the outcomes of the research thus far is:

  • It is very hard to say something with reasonable certainty about the impact on asset classes, and relatively certain to say something about sectors
  • Over time, the big negative impact will be on the producers and the big consumers of carbon: the energy sector, utilities and materials. If they do not adapt, they will become extinct. When and how depends on the development of policy and technology.

The fact that climate change is hard to fit in the traditional asset class roster is a major hurdle: should the strategists and economists next to their traditional angle look at the portfolio through a sector lens? My answer is yes – if the influence of climate change on potential investment outcomes is in the same order of magnitude as or larger than other slow moving risks that impact the portfolio, such as the ageing of the global population.

A relatively simple first step might be to understand how a carbon tax/price of between $40 and $100 per tonne of CO2 today would impact the portfolio. Why start with a tax angle? Because a price is a concrete basis for analysis.

The key requirement is not to project a path of the future carbon price, but rather to understand the impact of a carbon price on the different components of the portfolio. And understand the order of magnitude as compared to things you deal with every day, for example, a tax of between $40 and $100 would roughly lead to a permanent increase in the price of oil of between $15 and $40 per barrel. Who would suffer and why? Which assets will be stranded at which carbon price? Who could profit and why?

Bottom up

With the insights of the first step in hand, the second step then would be to start having dialogue with the actual investment teams.

The longer their investment horizon, the more they should take carbon risk into account already in their investment decision making: it is hard to imagine that you invest in a long-lived coal power plant today without thoroughly understanding what a carbon tax would do to projected cash flows and the value of the investment.

This dialogue should lead to an understanding of which investments are relatively risky and which are relatively promising. It is, for example, hard to imagine a future without a serious energy sector, but the composition of the sector will certainly change dramatically over the next decades.

By combining the bottom-up and the top-down views, it should be possible to draw a roadmap of the integration of carbon risk in the investment approach and define concrete next steps for monitoring, managing and mitigating carbon risk in the portfolio, which can be rolled out in the next few years.

I hope that the ideas in this piece help you. I am a certain there are other approaches. I invite you to share your ideas and approaches to this problem.

 

Jaap van Dam is principal director of investment strategy at PGGM.