Business

Institutional Investors: Focusing On Long-Term Value In A Short-Term World

Today’s high multiples, low spreads, and increased volatility have investors focused on returns in the short and medium term. But pension funds and endowments are inherently focused on the long term. In this environment, how can these sources of patient capital stay patient? What governance structures best promote long-range investing? Does the developing or developed world have more of these opportunities, and how can institutional investors successfully integrate environmental, social, and governance factors into portfolio decisions? What role should alternatives play, given that the yield curve is now pointing to riskier assets? Has the recent run-up in U.S. interest rates prompted changes to investments or outlooks? How do long-term investors think about volatility?

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Institutional Investors
Image source: YouTube Video Screenshot

Speakers

Moderator

Joseph L. Hooley, Chairman and CEO, State Street Corp.

Speakers

Christopher Ailman, Chief Investment Officer, California State Teachers' Retirement System; Co-Chair, Global Capital Markets Advisory Council, Milken Institute

David Atkin, CEO, Cbus

Vicki Fuller, Chief Investment Officer, New York State Common Retirement Fund

Nick Moakes, Chief Investment Officer, Wellcome Trust

Juan Manuel Valle PereƱa, CEO, Afore XXI Banorte

Institutional Investors: Focusing On Long-term Value In A Short-Term World

Transcript

Please welcome your panelists for institutional investors focusing on long term value in a short term world moderated by Chairman and CEO of State St. Joseph L. Houli. Thank you. Good morning everybody. Thanks for being part of this panel. As you heard the focus for this next hour is on focusing on long term long term value on the short term world. And we'll get into that I've got a terrific group of panelists here which I'll just briefly introduce starting on my right your left Chris Alemann who is the CEO of Cool Stores the world's largest educator only pension fund. He oversees some 225 billion in assets. Chris is a 27 year veteran of these wars. To his left is David Yadkin who is the CEO of seabass industry superannuation fund which is one of the largest super funds in Australia focusing on 75000 members and the focus is on construction building allied industries 43 billion. He oversees. To my left is Vicki Fuller who's the CEO of New York State Common Retirement Fund which is the third largest U.S. pension fund with 209 billion in assets that she oversees for her participants. Vickie's right is Nick mopes. Nick is the CEO for Welcome Trust which is a global charitable foundation dedicated to improving health nixed oversees some 32 billion in assets. And then on the far right is one Maniel vile Purina CEO CEO of 0 4 for a 21 Banknorth day which is the largest pension funds administrator in Mexico and he oversees some 40 billion in assets. So just to get things started.

You know you've got a half a trillion of assets that are overseen here very global as you can tell. But I just wanted to set the stage a little bit. You know the world feels to most of us like it's gotten a little bit better. You know if you look at and 2017 global GDP at three point seven percent anticipated three point ninety four percent this year developing markets continuing to perform if not outperform India a star. If you look at the developed markets they're in a different phase. In the face of tightening interest rates you've got three of the G7 banks have already started to tighten rate policy started with the US largely anticipated that Australia will kick in this year maybe next year. The ECB yet it's a market where many people think that equities are overvalued. So I just want to start out now I'll pick initially on the three CEOs of the pension funds just like you know what's in the world of your strategy. How would you lay it out right now. What does the strategy look like Chris let me kick it off to you. Just the broad strategy broad strokes you know from our perspective the world looks like Goldilocks not too hot not too cold not too cold and we just met last week with all of our senior staff and looked at the whole world and really didn't find anything to look compellingly cheap. Everything looks fairly valued. So we're actually staying very close to home right on top our targets. If anything leaning a little defensive because the global risks are right but you know I think overall we're not going to take a lot of risk.

We're not going to take a lot of risk within the portfolio at this point in time because things just don't look cheap. But you know the title of this I want to emphasize we're long term we're looking out 30 years. So while I pay attention to what's going on around us I'm a cruise ship with a really long term horizon. Mike batten down the hatches but I'm not going to put into port and call it quits. And Chris just stay on your public versus private. What's the tilt there. We're a very mature pension plan. We're actually 103 years old so we have a negative cash flow. So we really probably can only afford to be about a third in elite quid's maybe higher but we're finding that liquids are priced to perfection even multiples in the private equity market cap rates in the real estate market. The lack of infrastructure deals in general notes that are priced to perfection. So we're a steady state investor. We find those markets really too hard to time and you know something like private debt where you're putting money to work in a GP has four years to invest. You can't pick the vintage year you exactly want. So we're a steady state investor in those markets. Things like real estate are getting a lot more defensive. Just you know deleveraging Brussels's portfolio. Not trying to take as much construction.