Institutional Investor’s Global Sovereign Funds Roundtable was well worth the trip to London. All credit to Stephen Glover and the II team for putting on a seriously enjoyable event. I’m fairly certain this is the largest gathering of sovereign funds in the world. (Note: II defines sovereign funds to include SWFs, CB reserves, public pensions and social security funds). I counted something in the order of 100 funds (!) in the room. As you might imagine, I left with a stack of notes.
As usual, the proceedings are run according to the Las Vegas Rule (i.e., ‘what happens in the meetings…stays in the meetings’). I have to say, I’m a big fan of this approach. The guarantee of confidentiality has a huge effect on the willingness of the participants to exchange information and ideas in a highly open fashion.
Still, I am within the boundaries of my ethical commitment to share some very broad insights, so here are some of my personal take-aways:
- Risk factors! This is the hot button issue in portfolio design at the moment. It’s remarkable to see this investment approach gain so much traction so quickly.
- Alignment! There is an increasing focus on innovative mechanisms to achieve better alignment between asset owners and asset managers to overcome principal-agent problems. Interestingly, I get the sense that ‘alignment’ will be much easier to achieve in short-term asset classes (e.g., hedge funds) than it will be for the longer-term asset classes (e.g., infrastructure).
- The long term! There seems to be a sincere interest to re-focus on the long-term investment strategies (think decades, not years). Some questions that ended up in my notebook: How do you build internal systems to facilitate contrarian strategies? How do you convince trustees to give sovereign funds the freedom they need to place intergenerational bets? What are the potential returns that can be exploited with a long-term strategy? How can a fund articulate the commercial basis for these investment strategies to its stakeholders?
- Governance! Asset managers are coming up with some interesting and innovative asset management strategies. There is no doubt about that. However, implementation of these strategies may be constrained by the inherited institutional and organizational inflexibilities of sovereign funds. Good governance will be the key factor underpinning innovation.
Anyway, it was an interesting event. Thanks again to the folks at Institutional Investor for inviting me along. I look forward to the Americas event in Washington DC this September.