In the 60 years since the first CFA exam, the accreditation has been forced to evolve to meet the modernization of the profession. As the CFA celebrates this big milestone, chief executive Marg Franklin talks to Amanda White about the enhancements to the CFA program and how it can meet the future investment professional. 

 The CFA made the most comprehensive enhancements to its program in March this year as it seeks to maintain the essence of Benjamin Graham’s vision to focus on professional standards but also keep pace with the industry’s evolving ethical, technical and client-led demands. 

As the industry has evolved, so too has the program. The latest enhancements focus not only on more relevant content as the industry matures, but also on the way people learn, and the usefulness of the accreditation to their career paths. 

As the CFA celebrates six decades and more than 190,000 charterholders since the first exam in 1963, chief executive Marg Franklin says the changes were made following extensive research with investment professionals. 

Additions to the program incorporated digital practical skills modules that included Python, data science and AI; as well three specialised pathways: portfolio management (the traditional version of level III), private wealth and private markets. 

“The most important feature of the changes is we added the practical skills modules for each level,” Franklin tells Top1000funds.com in an interview. 

“We know candidates and employers want more job-ready candidates. We champion integrity and well-educated, ethically oriented professionals. My ambition is that we are a very effective leader for investment professionals and fill a role that they can’t get elsewhere. I’m thrilled about the enhancements to the program and how they have been received.” 

Other useful changes for candidates include the badging of level I and II so they can show their commitment as they move through their career, a reduction in the volume of materials to maintain a 300-hour preparation time for each exam, and more practice materials.

Over time the CFA has also been introducing certificates and structured learning around specialist skills to upskill and re-skill investment professionals as their careers develop. Data science and ESG certificates are already available and early next year a climate certificate focused on technical skills will be added. 

“There is a huge supply/demand gap for these skills,” Franklin says. “There also need to be more people certified in private markets, the same with private wealth and they are all in flight for next year.” 

Other areas of evolution include adapting the program to other areas of the investment food chain, by examining more closely what it means to be part of a T-shaped team where there are specialists who may not need their CFA charter but need to understand certain components of it. This includes adapting the investment foundations module for middle and back-office people. 

Similarly, as the industry embraces AI, investment professionals need to understand data scientists, and the reverse is also true.  

“We need to meet the industry composition where it is. The two parties need to understand each other,” Franklin says. “We are in an environment where society is demanding better, the world is more complicated and returns are harder to come by. The leadership we provide that has a sense of practicality and purpose for the ultimate betterment of society has never rung more true. Ultimately we are building a better system by improving investment professionals.” 

 CFA leadership starts with research 

Research is at the heart of the CFA’s leadership. It is pervasive in the changes to the program and lies is core to its forward-looking reports on important areas such as diversity equity and inclusion, the investment professional of the future and AI. 

As the world and the investment community become more complex, Franklin says the stakes are higher for investment professionals.  

“We have always provided excellent research particularly with structural longer-term aspects of the industry,” she says, pointing to research released earlier this year on a crypto currency and a portfolio perspective, the Handbook of AI and Big Data Applications in Investment, which was a culmination of five years of work; and to the Future of Work and the changing nature of culture, which is due to come out in October. 

CFA is launching a research and policy centre this year, headed by Paul Andrews, which will build out its own research capabilities and bring in luminaries from the industry. 

The research will be organised around four themes: sustainability; resilience of the capital markets, which gets to things like social media, AI and big data and the influence of that on the industry; and the investment professional. 

“Our convening power is extraordinary, part of that is because we are not for profit and have no commercial imperative for an outcome, but also we are not a trade association, that is powerful,” Franklin says. 

“We look through the lens of our mission and give people the ability to look around corners.” 

In 1963, 284 professional investors took the first CFA exam across the United States, only six of them were women. Today 18 per cent of the 190,000 charterholders are women, up from 2 per cent in the first exam. 

In 1963, 284 professional investors took the first CFA exam, only six of them were women

The CFA’s work to focus the industry on diversity equity and inclusion (DEI) is an example of the organisation’s power to effect change. (See Accelerating change: operationalising DEI) 

In 2021 it released a DEI code, rooted in six principles: pipeline, talent acquisition, promotion and retention, leadership, influence, and measurement. It was the culmination of a collaboration between CFA and a working group of industry leaders, including the experimental partners program and asset owners such as Texas Teachers, BCIMCo, and Australia’s VFMC, that began back in 2019. 

“No one expected [the code] to be as widely successful as it has been,” Franklin admits. “But 18 months past the launch and we have exceeded our expectations. We had a goal of 40 signatories and it is now at 158 signatories.” 

Franklin describes diversity as an organisation’s ability to attract talent, inclusion as the retention rate, and equity as internal promotion. 

“Anybody can get diversity, but the retention is where you really have to scrutinise what is in your culture as a barrier or blocker to a more diverse workforce,” she says.  

“The world is getting more complex, so you want more perspectives, more experiences, talents and skills, and managing that is not easy. Anything worthwhile is not easy, otherwise it would be arbitraged away.” 

The CFA itself was the first signatory to the DEI Code and Franklin says organisations will need to do a lot of internal interrogation in their approach to a diverse workforce but also to encapsulate AI and remote working. 

“We are not perfect, far from it, but we have spent a lot of time trying to improve” Franklin says. 

“I’m pleased with the multi-dimensional thinking we are doing around that. We think about how the industry will look going forward and we eat our own cooking. I’m proud of that.” 

 

Pensionskasse SBB, the CHF 17 billion ($19 billion) Bern-based pension fund for employees of Switzerland’s state-owned railway company, SBB, is increasing its allocation to equities.

Convinced higher interest rates signpost higher anticipated returns ahead, SBB will increase its equity allocation including private equity a few percentage points from current levels to 28 per cent of assets under management over the next two years in step by step increments that mark a departure from its highly conservative, low risk strategy.

“We have been thinking for a while that we could take on more risk,” says Dominik Irniger, head of asset management at the fund in an interview with Top1000funds.com.

“Although we lost money last year, the increase in interest rates has increased our return expectations and we are looking forward to higher returns as the financial situation gets more stable.”

The increased allocation will include bumping up the private equity allocation to 6 per cent of assets under management where strategy centres around investing in funds in the mid-market space focusing on diversified, controlled exposures.

He favours these investments because they typically don’t involve as much leverage as other private equity funds and target investments in industries and companies that need restructuring, or are in their growth phase.

“We don’t invest in the kind of funds that just buy a company and leverage it up, making their money like that.”

He also likes co-investment and secondary fund mandates.

“There are opportunities for investors in the secondary market. Quite a few people are reallocating their private equity allocations, so the market is quite dynamic.”

The public equity allocation is a mixture of passive and quantitative strategies with climate targets aimed at reducing the carbon footprint. The overlay changes the weight of companies in the index according to emissions reductions, he explains. “Heavy emitters will see their weight reallocated.”

SBB aims to reduce emissions across the portfolio by 50 per cent (compared to 2022 levels) by 2030. The fund has already reduced emissions by 30 per cent compared to the benchmark. “Next to emission reduction, engagement is the central ESG strategy for our fund,” says Irniger.

“The rules-based allocation is not really passive anymore, but it does have a really low tracking error,” he reflects, adding that he is particularly mindful of tracking error risk. “We don’t like managers that take to many tracking error risk. “

Most of SBB’s managers running the public equity allocations are based in Europe whilst fixed income and active strategies are run by US managers.

The expansion of the equity allocation will also include building out the global public equity portfolio.

“We do plan to add some global equity managers but our main focus is breaking out with more private equity first,” he says. SBB uses external managers across the portfolio accept in the Swiss bond and mortgage allocation.

Conservative strategy

In a conservative strategy reflective of SBB’s high number of pensioners, half the fund is invested in fixed income comprising allocations to government and provincial (Swiss) government debt, mortgage-backed securities, corporate bonds, and high yield emerging market debt. Reflecting on the implications of higher interest rates on the allocation to Swiss government debt he notes, “we don’t think interest rates will go up anymore, the curve is quite flat now. Our expectation is that interest rates have peaked.”

Asset are divided between foreign equity (10.3 per cent) Swiss equities (4.9 per cent) foreign currency bonds (19.5 per cent) CHF denominated fixed income (42.8 per cent) liquidity (3.5 per cent) alternative investments (6 per cent) and real estate (13 per cent)

Infrastructure & real estate

In another strategy seam, trustees are currently discussing whether to allocate more to infrastructure via co-investments, potentially targeting a 3 per cent allocation. “In the past we’ve just invested in closed end funds,” he says.

Building out the real estate allocation is another priority. Over the last five years, the fund has gradually built-up internal expertise in its Swiss real estate allocation where a portfolio of CHF500 million ($579 million)  is expected to grow to around CHF1billion ($1.1 billion). “We have a team of 3 people doing this,” he says.

The increased equity and infrastructure allocations follow recent decisions to drop other portfolios. SBB no longer invests in insurance -linked securities following a series of poor returns.

“We had a long history of investing in insurance-linked securities but although our outperformance relative to the market was good, the market as a whole didn’t produce the returns we expected. Investments didn’t pay off so we divested a year ago.”

Nor does SBB invest in hedge funds anymore, switching is alternatives focus to private equity where he says the fees offer better value for money.

“The ratio of what you get and what you pay out in fees in alternatives is best in private equity. In hedge funds, half your performance often goes on fees, but this is not the case in private equity. Fees in private equity are high, but you also get a better performance.”

sustainability

Alongside Swiss funds like PUBLICA and compenswiss, SBB is a member of Switzerland’s responsible investor association SVVK-ASIR partnering to work on climate engagement with corporates.  Although he cites real progress around corporates committing to long and medium-term carbon reduction goals, he’s concerned corporate investment in the transition remains slow.

“Corporate investment plan are still not aligned to targets.”

Looking to the future, he says SBB will increasingly seek to integrate human rights into the allocation.

“We think we could do something in the bond space around integrating human rights and democracy issues; it’s something we are analysing. There is also interest to understand what impact our existing private equity investments have on environmental and social issues.”

In contrast to Nordic countries and the Netherlands, the fund’s corporate sponsor and trustees are driving ESG integration rather any concerted action from SBB’s beneficiaries.

“The Swiss themselves are more pragmatic about ESG,” he concludes.

 

Generative AI offers compelling investment opportunities and will significantly impact productivity, changing and reshaping industries, as well as driving innovation. It will lead to an increase in investment activity as corporate boards urge management teams to invest in the technology, and has already helped push the S&P500 into a bull market, said Rohit Sipahimalani, CIO of Temasek.

From an investment perspective, the revenue‑generating opportunities of AI and today’s nascent business models are still unclear and Temasek remains “very cautious.”

However, as investment starts to flow into the infrastructure around AI, focus for the S$382 billion ($289 billion) Temasek is on supporting portfolio companies apply the technology to create value. The investor is focused on building capabilities to co‑innovate products and services with its portfolio companies, he said.

Reflecting on other opportunities in the current investment climate, Sipahimalani said Temasek would invest in companies which have strong pricing power. Wary of continued inflation and higher interest rates, he said, “we will increasingly favour companies that have strong cash flows compared to the past.”

The green transition will also be a key focus where opportunities will be fanned by encouraging fiscal policy like US policy IRA. In another approach, Temasek will look at opportunities through a geopolitical lens.

“We wouldn’t invest in areas that are in the cross hairs of US /China tensions,” he said. Similarly, in a fragmented world he said he preferred investing in companies that have access to large domestic markets.

Amid opportunities, Sipahimalani warned that the global economy remains fragile. Speaking as the investor reported a 5.07 per cent drop in total shareholder returns, its poorest annual performance since 2016, he warned that geopolitical tensions show no signs of easing.  Inflation remains elevated causing most central banks to maintain tight monetary policy and growth is also slowing with tighter credit conditions, pointing to recession in developed markets.

“I know we and everyone else has been saying this for a while now – it is the most anticipated recession which still has not happened. We do believe that to keep inflation under control, we probably will need to see a recession, although the timing for that is uncertain.”

In response to last year’s tough investment conditions Temasek slowed the pace of investment and divestment. Temasek invested S$31 billion and divested S$27 billion, resulting in a net investment of S$4 billion. This compares to a net investment of S$24 billion in the prior financial year.

Portfolio diversification

The portfolio is anchored in Asia, with almost two thirds invested in the region. Still, exposure outside of Asia into the Americas and Europe has more than doubled over the last decade with a focus on sectors including transportation and industrials and financial services. The portfolio has also been structured around key trends. Over the last decade the allocation to life sciences and agri-food sectors, for example, has grown from 1 per cent to 9 per cent. Since 2011, the returns of Temasek’s focus sectors have outperformed the overall portfolio by about 4 percentage points.

In 2016, Temasek identified structural trends to guide portfolio construction including digitisation and sustainable living, future of consumption and longer lifespans. Today  investments aligned to these trends account for 31 per cent of the portfolio.

Temasek’s investments in unlisted assets span different strategies. It invests directly into private companies, including early-stage companies. In another approach, investments in third-party funds enable Temasek to gain insights into new sub-sectors and markets, and also provide co-investment opportunities. Temasek also  mandates around S$80 billion to asset managers to invest in private markets, and over the last 20 years, returns in unlisted assets have outperformed listed returns.

The unlisted portfolio also provides liquidity through dividends, distributions, divestments and when companies list. For example, in the last five years holdings, such as Adyen, Meituan, and Roblox have been listed with significant value uplift.

Temasek values its unlisted investments at book value less impairment, but if it were to mark it to market, it would provide an uplift of about S$18 billion to the portfolio.

To manage the higher risks that come with early-stage companies, Temasek caps exposure to this segment to 6 per cent of the portfolio. Early-stage investments in the past include Meituan and Alibaba, both generating returns above industry averages.

outlook for china

Sipahimalani said that although the Chinese economy is coming into a cyclical recovery out of COVID, the pace of recovery is slower than expected. “China seems to be on track to achieve its 5 per cent GDP growth target for this year but could fall short of market expectations which are for higher growth.”

“Property sales have fallen, infrastructure spending has slowed, and exports growth have slowed,” he said. “The only engine we need to rely on to achieve the growth targets for this year is consumption, but the lack of job opportunities has been impacting consumer confidence and holding back spending.”

Expectations that the Chinese government will provide stimulus to step up growth like they have done in the past are high. But he predicted that any stimulus will be much lower, and much more modest, than what investors have seen historically.

Temasek is now looking to deploy more capital into south east Asia than it has in the past given the potential of the internet economy in the region, China + 1 and favourable demographics. One reason is the emergence of the Southeast Asia digital economy.  He said that security and resilience now takes precedence over globalisation, and de-risking, decoupling and fragmentation are the investor’s new watchwords.

 

Government Pension Fund Global, Norway’s giant sovereign wealth fund, has topped the list of the most transparent funds in the 2023 Global Pension Transparency Benchmark, beating last year’s winner CPP Investments by only one point.

The results indicate a heightened focus on transparency and improved practices in the industry with a very tight race among the top funds. The first three funds were separated by only one point each with CPP Investments and AustralianSuper ranking second and third, respectively, overall.

The results this year revealed a jump in the overall quality of pension fund disclosures, with 77 per cent of funds making improvements in their scores.

The results are evidence that increased scrutiny of the transparency of disclosures is driving measurable improvements among some of the world’s largest asset owners, and the benchmark is a facilitator for improved transparency in the industry.

CEM Benchmarking product lead for transparency benchmarking Edsart Heuberger said 58 of the 75 reviewed organisations improved their total transparency scores.

This year the average fund scored 60 out of 100, an improvement of five points relative to the last edition of the transparency benchmark in 2022. In addition, the leaders made marked improvements.

“Four of the five transparency leaders increased their transparency the most: some have publicly declared their intent to be the most transparent pension organisations in the world,” Heuberger said.

The Global Pension Transparency Benchmark, a collaboration between Top1000funds.com and CEM Benchmarking, is a world-first global benchmark measuring the transparency of disclosures of 15 pension systems across the value-generating measures of cost, governance, performance and responsible investments.

It ranks countries on public disclosures of key value-generation elements for the five largest pension fund organisations within each country. The country rankings are now in their third year, with the scores of the 75 underlying funds published for the second time this year.

The GPTB focuses on the transparency and quality of public disclosures with quality relating to the completeness, clarity, information value and comparability of disclosures.

The overall scores and rankings are measured by assessing hundreds of underlying components and analysing more than 13,000 data points.

“It is heartening that the Global Pension Transparency Benchmark is stimulating discussions on transparency and driving organisations globally to improve their public disclosures,” Heuberger said. “Transparency matters. Congratulations to the top-ranking funds on the GPTB for leading the way on transparency and communication quality.”

This year the process has been refined with additional governance measures to ensure better data and assessment.

The scoring process follows a four-tiered system including an initial review; factor-team review; CEM team reviews, including a review by the Top1000funds.com team; and an advisory board review. Following these four steps there is also the chance for a one-on-one informational meeting with the underlying funds.

Advisory board member Keith Ambachtsheer said it was fascinating to see the increases in both fund engagement and in the GPTB scores this year.

“The Peter Drucker observation that ‘what gets measured gets managed’ is alive and well,” he said.

The way the industry has embraced the GPTB is a positive reflection of how seriously funds take transparency, and their drive for

improvement is an indicator of the power of the benchmark which reframes the transparency narrative from a narrow and negative focus on costs to a more holistic and positive concept of transparency that includes governance and strategy, value generation and sustainability.

For all the scores and rankings by country, fund and factor click here.

 

 

 

Canada is a standout in the transparency of pension fund reporting, topping the list of countries for the third year in a row, with a score of 83, and eight points clear of the next best country score.

In a benchmarking first, all five assessed Canadian funds feature in the top 10, with an average improvement in this year’s score of eight points, showcasing that improvements can be made even when funds are already demonstrating best practice.

The top five countries were rounded out by The Netherlands, Australia, Sweden and the United Kingdom.

Australia was the single biggest country improver, increasing its country score by 10 points, and making its way into the top three by nudging out Sweden.

CEM Benchmarking product lead for transparency benchmarking Edsart Heuberger said Australia’s country improvements were driven by AustralianSuper’s better performance, and by Australian Retirement Trust, a fund created from the merger of QSuper and Sunsuper, scoring much higher than QSuper alone did last year.

As well as ranking first among the countries reviewed, Canadian funds collectively were the best funds for disclosure around governance and performance. Dutch funds also deserve an honourable mention: collectively they provided the best disclosures on cost and responsible investing.

The past three years has seen gains in transparency across all factors but there is still room for improvement, particularly when it comes to transparency of disclosure around costs.

“Leading countries excel in different areas,” CEM’s Heuberger says.

“Canadians have terrific reporting on governance and investment performance, the Dutch are world-class on costs, and the Nordics excel in responsible investing.

“Generally, funds would gain the most by improving their external investment cost and responsible investing disclosures.”

The GPTB does not account for different regulatory regimes, but it acknowledges that different regulators are driving different disclosure requirements that could impact fund disclosures and comparability.

This is seen particularly in the cost factor, where the top three scores were held by The Netherlands, Canada and Australia. The primary distinguishing factor of these leading funds is the strict regulatory environment that they operate in. (See story on factor scores.)

The Global Pension Transparency Benchmark is a collaboration between Top1000funds.com and CEM Benchmarking and a world-first global benchmark measuring the transparency of disclosures of 15 pension systems across the value-generating measures of cost, governance, performance and responsible investments

It ranks countries on public disclosures of key value-generation elements for the five largest pension fund organisations within each country.


The country rankings are now in their third year, with the scores of the 75 underlying funds published for the second time this year.

The GPTB focuses on the transparency and quality of public disclosures with quality relating to the completeness, clarity, information value and comparability of disclosures.

The overall scores and rankings are measured by assessing hundreds of underlying components and analysing more than 13,000 data points.

For all the scores and rankings by country, fund and factor click here

 

 

The highest scoring funds overall in the 2023 Global Pension Transparency Benchmark were also among the biggest improvers. Both Norway’s Government Pension Fund Global and AustralianSuper increased their scores by 14 points year on year and were the biggest improvers in the top 10. Other top 10 improvers of note included Canada’s CDPQ, CalPERS from the USA and the Dutch fund PFZW.

Overall the 2023 results revealed that the average fund improved by five points compared to 2022, but four of the five leading funds improved by more than 10 points, showcasing the importance the top funds put on transparency and that improvements can be made even when funds are demonstrating best practice.

The results of the GPTB this year revealed a jump in the overall quality of pension fund disclosures with 77 per cent of funds making improvements in their scores.

Outside the top 10 South Africa’s Eskom, Switzerland’s Migros, Finland’s VER, Brazil’s Itau Unibanco and Funcef, and New York City Retirement System all made significant progress in transparency and had noticeably improved scores.

The governance factor was the biggest improver of the four factors with 92 per cent of funds improving their score on this factor (see story on factor scores).

Edsart Heuberger, CEM Benchmarking’s product lead for transparency benchmarking said 58 of the 75 reviewed organisations improved their total transparency scores.

“It is great to see so many funds engaged in transparency and improving their transparency. The five leaders increased their transparency the most, with some declaring they want to be the best in the world,” he said. “Some funds have been really proactive, they want to be better. This year there has been more discussion about the importance of transparency and the benchmark has driven change and put a line on best practice.”

GPTB advisory board member Keith Ambachtsheer said it was fascinating to see the increases in both fund engagement and in the GPTB scores this year.

“The Peter Drucker observation that “what gets measured gets managed” is alive and well,” he said.

The Global Pension Transparency Benchmark, a collaboration between Top1000funds.com and CEM Benchmarking, is a world first global benchmark measuring the transparency of disclosures of 15 pension systems across the value generating measures of cost, governance, performance and responsible investments.

It ranks countries on public disclosures of key value generation elements for the five largest pension fund organisations within each country. The country rankings are now in their third year, with the scores of the 75 underlying funds published for the second time this year.

The GPTB focuses on the transparency and quality of public disclosures with quality relating to the completeness, clarity, information value and comparability of disclosures.

The overall scores and rankings are measured by assessing hundreds of underlying components and analysing more than 13,000 data points.

For all the scores and rankings by country, factor and all the 75 funds click here