A study of the performance of companies over an 18-year period has found that high-sustainability companies out perform low-sustainability companies and have lower volatility. (more…)
As with most education, financial literacy is dependent on many personal and social factors. But now it turns out that for those living in the USA, the state in which you live may also be a determining factor. (more…)
Institutional investors need to move beyond “bombastic support” of environmental, social and governance (ESG) issues, says the head of the world’s peak trade union organisation, who also challenges investors to lead change in investment practices rather than just offer rhetorical support of the UNPRI.
Sharan Burrow (pictured), general secretary of the International Trade Union Confederation (ITUC) says investors need to drive the green investment agenda rather than be passive participants in a status quo dominated by what she calls the “dormant agenda” of the financial sector.
“Serious investors need to look at the sustainability of capital and their responsibility under UNPRI. They are not serious about their ESG commitment, but they have to be. If they don’t drive green investment we won’t meet the challenge of a sustainable future,” she says. “We need to show responsibility for a sustainable future. I would challenge investors to do more.”
It is hands off for institutional investors to blame government policy for their inaction, she says.
“We are seeing the planning that goes to sustainability. South Africa for example has a growth plan which includes a 60 per cent target in green infrastructure and investment. Brazil and Argentina are conscious of green economy investing, and there are a dozen or so more countries I could name. It is no excuse for investors to say government is not capable of managing investments in that,” she says. “Investors also need to talk to governments about kick starting systems in emerging markets with official development assistance, putting money in basic infrastructure.”
“The transformation of the global economy needs to be green,” she says. “There is a moral responsibility for a healthy and sustainable future, but also the principles of the green economy must reflect respect and dignity of human beings.”
The ITUC, which represents 175 million workers in 151 countries and territories, has set out an alternative growth model that focuses on stimulating employment through infrastructure and climate related investments and public services.
Burrow says the IMF, World Bank and G20 Governments need to assume leadership and put a halt to destructive economic policies as austerity measures threaten to create several million more job losses, making it even more unlikely deficit targets will be reached.
The recent financial crisis – record low unemployment and in particular youth unemployment that has potential for social catastrophe, low demand and a decline in income share against productivity – is evidence that classical economic models have failed, she says.
“We have to raise global funds through unorthodox methods to rebalance the global economy,” she says.
To this end the ITUC advocates a financial transactions tax, and Burrow believes Europe will “go it alone” in the first instance.
She says a financial transactions tax would pay for job recovery programs and meet development and climate commitments.
“A financial services tax is absolutely feasible. It is short-sighted of industry to object because it will be returned to them in growth and demand through jobs, people, sustainability that underpins their business, it will help their growth. It is extraordinary they are actually sowing the seeds of their own destruction. There is no moral responsibility by the financial sector,” she says. “This time the crisis should provide a wake up call, classical economic models have failed.”
Ahead of the Durban climate summit in December and next year’s United Nations Conference on Sustainable Development, Rio+20, in Brazil, (http://www.uncsd2012.org/rio20/index.php?menu=14) the ITUC is developing research and its position on investment in green infrastructure and the greening of all industry.
In particular it is conducting research into the job growth that could be generated by a simple 2 per cent of GDP being allocated to a green economy.
“There are certain proposals we’ll write regarding an alternative growth model and a green economy. We’re looking at universal social protection and rights for people as well as income led growth and a commitment to a just transition. Investment in new areas of industry must be about green infrastructure.”
The ITUC alongside the European Trade Union Institute, the Trade Union Advisory Council and the Global Union Research Network have created a task force to define the parameters of a new growth model based on a more balanced relationship between government and the economy.
Insuring against tail risk is too costly and a drag on long-term performance, with AQR Capital Management research revealing investors should instead make changes to their portfolio construction and risk management policies to better protect against unexpectedly large losses. (more…)
The $89.9 billion New York State Teachers Retirement System (NYSTRS) has achieved its best result for 25 years, returning 23.2 per cent for the year to June 30, 2011, with the strong performance driven mainly by its equity portfolio.
NYSTRS, which claims to be one of the few fully-funded public pension funds in the country, reported that its stellar year increased the value of its assets by a further $13 billion.
The latest financial-year result is nearly double the fund’s return of 12.1 per cent in the previous financial year.
NYSTRS’ five-year return is 4.2 per cent a year, and over 25 years it has returned 9 per cent a year, 100 basis points more than its long-term actuarially-assumed rate of return of 8 per cent.
The president of the fund, Michael Kraus, a 20-year veteran of the board, says the fund’s strong position was due in part to the continued contributions from both members and employers.
“Public pension funding is a shared responsibility and we would not be where we are without consistent, uninterrupted employer and member contributions,” he said in his annual message to members.
“In New York we are fortunate to have a funding framework that values contributions on time and in the full amount. States that have taken ‘pension holidays’ or made reduced contributions are now dealing with the devastating effects of these decisions in the form of under-funded plans.”
Over the past two years the fund has pared back its losses from the global financial crisis, when it lost 20.5 per cent in 2009 and 6.3 per cent in 2008.
Its public equities portfolio was the engine room of performance, and represents more than 58.5 per cent of the fund, or $53.4 billion.
Domestic equities are predominantly internally run, with 95 per cent of its holdings in what its investment team describes as “several low-risk strategies targeting broad US market exposure”.
The remaining 5 per cent is allocated to external managers seeking above-benchmark returns.
Its domestic equities portfolio generated a return of 31.7 per cent, versus the S&P 1500 index return of 31.6 per cent.
“The portfolio benefited from excess returns to growth and value strategies internally managed by system staff,” the fund’s investment team told members in its annual report.
“The system’s external managers also contributed excess returns, partly from exposure to small and mid-capitalisation stocks.”
The fund has a target to reduce its domestic equity holdings from their current level of 45.3 per cent of the portfolio to 42 per cent.
Over the course of the year the fund raised more than $4 billion from domestic equities, reallocating the cash either to international equities to fund new external managers, or to short-term fixed income investments.
It plans to lift its international equity holdings, which are mostly in developed markets, from 13.2 per cent to 15 per cent of the portfolio.
In 2009 the fund decided to restructure its international equities portfolio, with 25 per cent to be actively managed and measured against an MSCI ACWI Ex-US benchmark.
It also has plans to increase its exposures to domestic fixed income from 13.9 per cent to 18 per cent; and to mortgages, which combine both conventional and federal housing administration mortgages, from 6.1 per cent to 8 per cent.
Other strong performing assets for the fund included its real estate investments.
The fund’s REITs returned 33.6 per cent for the domestic portfolio and 31.2 per cent for the ex-US portfolio.
Its directly-owned real estate assets, and a combination of opportunistic funds and value-added real estate funds, achieved 23.7 per cent and 31.9 per cent respectively.
The fund has a 7 per cent target allocation to private equity and as of June 30 had 8.2 per cent of its portfolio invested in this asset class.
NYSTRS’ private equity portfolio outperformed its benchmark on a five and 10-year basis with a performance of 9.6 per cent and 10.5 per cent above a comparable benchmark performance of 7.9 per cent and 7.7 per cent.
But over a shorter time frame the fund under-performed its benchmarks for private equity.
The one-year performance of 23.8 per cent lagged its benchmark performance of 35.7 per cent and the three-year average return of 2.6 per cent lagged the benchmark performance of 8.3 per cent.
“This is primarily attributable to greater volatility in public markets outpacing the revaluation in the private equity portfolio,” the investment team told its members.
Since the fund began its private equity program in 1984 it has generated an internal rate of return of 11.8 per cent.
For the 2010 calendar year the fund also looked to exercise its rights as shareholder voting on 16,607 proposals, representing 1963 meetings for the companies NYSTRS owns in its equity portfolio.
It voted with management proposals in 87 per cent of cases, voting against 12 per cent of the time and abstaining in 1 per cent of votes.
It rejected almost half of the 555 shareholder proposals it voted on.
“System policies generally support management if the position is reasonable, is not detrimental to the long-term economic prospects of the company and does not tend to diminish the rights of shareholders,” the fund said in its annual report.
Uncertainty in global markets, and the potential for the Eurozone crisis to worsen, means investors should be focusing on capital preservation and shedding risk, says the managing director of Rogerscasey, and former CIO of the Kentucky Retirement Systems, Adam Tosh. (more…)