NEST and AustralianSuper, the largest defined contribution trust funds in their respective countries, face similar challenges related to growth. The Fiduciary Investors Symposium at the University of Oxford heard how the funds are leaning into their growth challenges from a cultural and investment perspective.

Both NEST and AustralianSuper, the largest defined contribution funds in their respective countries, have seen rapid growth in their short histories. NEST has gone from zero to £47 billion and will reach £100 billion by 2030. AustralianSuper with A$341 billion is projected to grow to A$700 billion by 2030.

NEST Invest chief executive Mark Fawcett and AustralianSuper deputy chief investment officer Damian Moloney reflected on the challenges of their huge inflows which includes about £500 million in new contributions per month for Nest, and for AustralianSuper is about A$21 billion in net cashflows per year.

“The cashflow is the challenge,” Moloney told the Top1000funds.com Fiduciary Investors Symposium at the University of Oxford.

“It means exponential growth for the business, but also means an investment challenge for us. We’ve had we’ve built the team quite significantly on the investment side, but also on the member side and deployment has been largely met as planned.”

AustralianSuper has about 57 per cent of assets internalised and has scaled up the size of the transactions in private markets in particular, and it deploys capital externally as well.

“All the support that we need to run those operations, we’ve built over the last five or six years as well,” Moloney said.

“So it’s been a sort of multi faceted program. We’ve made a few mistakes over the over the years, and had to slow down in certain areas.”

NEST was formed in 2008 and the pace of growth has not always been fast, it took about three years to amass the first few £100s of millions in assets. It added asset classes slowly as it grew and was upfront about its terms of engagement with asset managers.

“We don’t pay performance fees, we just get that out up front. But what we do have is cash flow. [A manager] is going to get allocated £100 million or £200 million, possibly £1 billion every year, depending the asset class. So if you value that cash flow, and you can offer us a very competitive fee, then we can have a partnership,” he said, adding in the 13 years the fund has invested it has only fired one manager and that was due to ESG evolution.

“Generally, our manager picks have been good. They’ve pretty well all outperformed since inception, but we’re very careful [with] who we pick. We want them to be with us for a long time, and for them, that’s a benefit, right? They’re going to keep getting that money coming through the door. If you’ve got the imagination to change your business model to work with us, there’s some real benefits to that.”

At a high level, NEST is evolving its governance structure to try to delegate more down to the executive suite, it’s partly why Fawcett moved from CIO to CEO of Nest Invest to make sure that decision making in the executive was high quality and had sufficient rigour.

“For me, it’s about hiring good people,” he said. “We don’t pay a lot of money, so I say don’t come to work if you don’t love your job. It’s for smart people. You get smart people who are really interested in investment, and you empower them. You just push for decisions down as far as you can. And that way, they have a challenging job. They enjoy what they do, as long as there’s sufficient oversight over that. Then people hang around, because where do you get to invest £6 billion a year coming in, expanding into new markets and learning new stuff? Those opportunities don’t exist in many places. So having that highly motivated workforce.”

Sense of mission

Both NEST and AustralianSuper discussed their sense of mission as a motivation in hiring people.

“Our members are amongst the lowest paid in society. We’ve got a lot of minimum wage workers,” NEST’s Fawcett said.

“We’re providing, or we aim to provide the quality of investment product you only get by paying two and 20. In most DC schemes in the UK you can’t get in private markets, and we’ve got a big ambition there. So, it’s galvanizing that sense of mission that our team has for the benefit of members, the purpose.”

AustralianSuper has more than 2000 employees and in the past few years has staffed offices in London, now with 150 people, and New York, 60 people. And the plan is about 70 per cent of the assets will be invested offshore, up from the current position of 50 per cent. Maintaining a sense of culture is a particular challenge given that rapid acceleration according to Moloney.

“There’s internal programs we run around, culture, compliance, and risk so that’s all driven through as a sort of structured program of induction and enculturation,” Moloney said.

“But secondly, the types of people who join us, and I think Mark sort of made this point as well, have a slightly different motivation. They’re interested in the not-for-profit ethos that we have, they’re also interested in that ultimate goal of providing for people’s retirement.”

According to Fawcett one of the consequences of attracting people because of the purpose is an eclectic group of people, and that results in diversity of thought.

“We don’t hire in our own image, because we can’t find people in our own image, if you like, and therefore we just have a group of people who just tend to think differently,” he says. And while that is mostly a good thing, they can “occasionally rub each other up the wrong way” as a result.

Emphasising the importance of hiring the right people, reflecting on what he could have done differently Fawcett focused on hiring and retention.

“Hiring at the start was quite tricky, as it was in the aftermath of the financial crisis. We got some good people on, but we had to hire fast, and we didn’t always hire well,” he said, adding leadership sometimes requires moving people on quickly if they are not a cultural fit. “We’ve got a great team now, and it’s very stable, very low turnover.”

The second thing Fawcett ruminated on was data and technology.

“You know, we were building up the assets and the investment strategy and thinking hard about that. But we didn’t do enough work on technology,” Fawcett said.

Part of the technology challenge for NEST was signing on members and employers at a rapid pace, at its peak it was signing on 2000 employers a day.

“No one’s ever done that before,” Fawcett told delegates. “On the investment side we were focused on investing the money, so we didn’t give technology or data, I think, enough focus. Now I’m working with a consultant, and we’ve got a new custodian and we’re trying to clean it all up. We are on our third risk system in 12 years, so getting that on boarded and integrated, and making sure the data sits in the right place, and the people using the technology are making good, buy, build decisions.”

Moloney said that AustralianSuper has spent around four years building its investment platform, and how to optimise that and create value out of the platform will be important.

“It’s been a big spend and a lot of work over a lot of years, and that optimisation piece is really important. And secondly, the sort of maintenance and extension of it in a way that doesn’t create complexity. That’s one thing that we’re intensely worried about at AustralianSuper is creating complexity as we build more areas of the business, as we create potentially more products, as we get into the retirement phase, as we build the international investment platform and international team. How do we keep it simple?”

AustralianSuper is working on its 10-year plan through to 2035 which is when it will reach $1 trillion.

“And key components of that are investing at scale, performing at scale, and building a business that can deliver on all of that,” Moloney said. “The second thing we’re doing in that program is to work out what’s the right servicing model for what will be we think, five million members at that point in time, a large percentage of which will be in retirement.”

Moloney’s said the fund was trying to restrict the initiatives and projects and growth plans to two or three or four key things.

The potential of technology is constrained only by the laws of physics, whether classical or, increasingly, quantum. As the power of technology increases it allows us to understand the world in a lot more detail – including why the current path to net-zero isn’t going to work.

The disruption to asset owner portfolios from the rapid advances in technology will likely be greater than any impact on portfolios from factors such as geopolitics, the Top1000funds.com Fiduciary Investors Symposium at the University of Oxford has heard.

Senior fellow at Stanford’s Freeman Spogli Institute for International Studies and the Kleinheinz Senior Fellow at the Hoover Institution, Stephen Kotkin, said there is scarcely an area of human endeavour not being reshaped right now by technology, in one form or another.

“The tech disruption that we’re seeing is much bigger than geopolitical risk in terms of what’s going to happen to your portfolios,” Kotkin said.

But to fully grasp the potential impact of technology, one must understand the laws of physics – classical and, increasingly, quantum.

Wykeham Professor of Physics and Tencent Chair in Theoretical Physics at the University of Oxford, Shivaji Sondhi, said that the limits of technology are set by the laws of physics.

“Things are going on, transformative stuff in biology and computation, broadly,” Sondhi said.

“So you might say, what’s the importance of physics? Well, the first thing is really always to recognise that technology is limited by physics.

“The other thing, metaphorically, is that physics bridges software and hardware. By software, I want you to think very broadly that if you have lots of things that you’ve made, and you now want to combine them to do things. So in a computer, you have bits, and it’s using these bits and operations of them – [in] a quantum computer [it] will be qubits – and putting those things together.”

Sondhi (pictured) said there is potential for the power of quantum computing to overtake the power of classical computing, and “in the quantum realm [it] is the case where you see it’s the limits of physics which are now giving you the limits of technology”.

“You have computers, and a physicist says, ‘Well, you know, at the most microscopic level, nature doesn’t work like that.’ It’s not a classical world, it’s a quantum world, can we not do information processing at the most microscopic level, using the laws of quantum mechanics?

“Clearly, it can be no less powerful than what we can do with classical computers, because classical systems are made out of quantum systems, but maybe it could be more powerful.”

Sondhi said the physics department at the University of Oxford is “exceptionally broad”, studying fundamental physics, “which is physics which only physicists care about”, applied physics, and what it describes as “policy-relevant” physics, which itself is quite wide-ranging, but includes studying issues such as climate change.

“If you read a headline, anything that happened in the weather, you can find a headline that says it was climate change,” Sondhi said.

“Oxford is leading the way in trying to combine weather forecasting models, which cannot do centuries, but they’ve become very, very good at doing a week, a week and a half.”

Sondhi said Oxford physicists are conducting “multi-scale analysis” which allows big-picture forecasting to be combined with much more granular, localised analysis to make very accurate predictions about local weather events.

“You can take inputs from the longer running ones and match them to the more fine-grained ones,” he said.

“You can start to bridge the gap between what’s going to happen at the local level in a given region, which is the question of interest, economically [and] personally, to what the large-scale sort of movement is.”

Sondhi noted that also on the issue of climate change the concept of net-zero originated at Oxford, but since then the measurement and therefore the mechanisms developed to achieve it have drifted from the original concept.

Its analysis shows the current path to net-zero isn’t going to succeed.

“The initial formulation of net-zero was the idea that human activities, not counting the biosphere, not counting trees, not counting oceans, was going to go to net zero,” he said.

The actions of trees and the biosphere would continue, separate from steps taken by humans to address carbon emissions, which meant “you would get a decline back to much lower levels, you would get an actual lowering” of carbon in the atmosphere.

“Now, what’s happened in practice is that people have come to count if you have trees, then you say, ‘Well, I’m absorbing carbon’, and it’s absolutely allowed under the rules,” Sondhi said.

“But what this analysis shows is that that’s not going to work. And so perhaps interesting to you would be the idea that at some stage, the underlying science and the exact prescriptions and what the rules are will probably have to come into alignment.

“You may want to watch out for that when that happens.”

Transparency is key to building trust according to executives at Norges Bank and the United Nations Staff Pension Fund. They discussed the benefits, and limitations of transparency at the Fiduciary Investors Symposium at the University of Oxford.

The Government Pension Fund Global, the giant Norwegian sovereign wealth fund, achieved a perfect score of 100 in this year’s Global Pension Transparency Benchmark (GPTB). the score improvement was deliberate and considered, and involved executives from the fund lobbying the Ministry of Finance to be more diligent on disclosures that impacted the fund’s governance rating, including board effectiveness reviews.

Frederick Willumsen, global head of strategy and research for Norges Bank Investment Management, who advises the executive board and finance ministry on investment strategy, said the actions demonstrate how important transparency is to the fund.

“In one sense we have one client, the Ministry of Finance; but in another sense, we have five and a half million clients, the people of Norway,” Willumsen said at the Fiduciary Investors Symposium at the University of Oxford.

Norges Bank conducts a reputation survey every second year which shows a clear link between what people know about the fund and whether they trust the management of the fund.

“So for us it’s really important that people know what we are doing, they know the organization, the investment strategy and so on, because we really think that is a way of building trust in what we are doing,” Willumsen said.

“And asset management is a trust business, right? You really need trust. That’s the key thing. I can basically talk about anything we do, because it’s probably in the public domain already. So, transparency is really key for us, because that is the link to building knowledge and trust in what we do, that is the most important part of why we care about transparency.”

Unlike some sovereign wealth funds that don’t disclosure their AUM, Norges Bank publishes its AUM online, and updates the value 13 times a second.

Norges has somewhat of a complicated governance structure that includes delegation from the Parliament and the Ministry of Finance.

In the past year Norway’s SWF improved its governance score on the GPTB by deliberately negotiating with the Ministry of Finance to change some disclosures including criteria for appointing board members, compensation principles and board effectiveness reviews.

“Our board and the Ministry of Finance really care about transparency as much as we do, and hence they were very keen to change that,” Willumsen said.

The Global Pension Transparency Benchmark, a collaboration between Top1000funds.com and CEM Benchmarking, is now in its fourth year, It measures the transparency of disclosure across the four factors of cost, governance, performance and responsible investment of the five largest pension funds in 15 countries.

In 2023, 77 per cent of funds improved their transparency, and this year the figure was 69 per cent. So, the benchmark is having an impact on increasing transparency across the industry, one of its intentions from the outset.

David Jennings, director, client coverage Nordics and UK for CEM Benchmarking, said Norway had shown leadership by prioritising transparency and actively improving their score.

“Transparency definitely requires leadership, and I don’t think funds should just wait for regulation to happen. That’s been very clear with, with Norges. That’s been clear with the Canadians,” he said. “Sometimes it is a bit of a risk. And I think it does invite scrutiny, but that’s not a bad thing.”

Jennings pointed to the fact that this year nine of the top-scoring funds scored better than the top-scoring fund last year.

“There’s been a concerted effort across pretty much all funds to improve their transparency. But it’s really been the top-ranked funds who have been improving the most.”

A transparency journey

The United Nations Staff Pension Fund is not officially ranked as part of the Global Pension Transparency Benchmark, but it has voluntarily measured its own transparency using the publicly available survey that underpins the GPTB.

Pedro Guazo, General Secretary Antonio Guterres’ representative for the investments of the assets of the United Nations Joint Staff pension fund, takes transparency incredibly seriously.

When Guazo started as head of investments five years ago there were two websites for the fund: one for investments, and one for pension administration.

“When Rosemarie [McLean] and I joined five years ago we were in the middle of a severe crisis of confidence. The trust from our stakeholders was not there, and mainly because of lack of transparency,” he said.

“We made a pact back then to start sending a message as one fund. Because it doesn’t matter the reporting lines, you have one fund. So we started with having just one website and trying to put as much information that we consider relevant throughout the first couple of years. So it worked out. We started improving the trust with all our stakeholders until the moment that I saw it arrive into my email… that analysis from Top1000funds.com on transparency.”

Guazo said “being a numbers person” he wanted to do a shadow rating to see whether the fund’s work on transparency had paid off.

“And we almost died, because we got 45 points out of 100,” he said.

“We realised there was a lot of work to do. So we put together a taskforce with people from both sides, investments, back office, everybody, just to work and make a gap analysis.”

The fund moved from a rating of 45 to 75 in the first year, and in particular has improved the disclosure of board and committee member qualifications, and costs.

“The story is very nice. The trust is really good,” he said.

The limits of transparency

Both panellists said that while transparency is beneficial, especially because it builds trust, there are limits.

The UNJSPF said that in its case, it is not relevant for the fund to disclose all its investment holdings.

“We’re not disclosing all the transactions… and we have made a conscious decision that we will probably never reach 100 per cent based on the current methodology,” Guazo said.

Norges Bank does provide full portfolio look-through. All its holdings are updated twice a year and go back more than 25 years.

“If you go to our web page you can literally go back to 1998 and you can see every year all of the holdings down to the company level, the address level when it comes to unlisted real estate, every single bond, everything,” Willumsen said.

The fund operates within the mandate it has been given by the Ministry of Finance and that includes investments that may be criticised, such as holdings in Israel.

“This is a big topic in Norway, the conflict in Gaza. We are operating within the mandate that we have been given by the Ministry of Finance. Any decision to not invest in Israel will need to be a political decision made by the correct authorities, not by us.”

Artificial intelligence continues to make inroads into the investment operations of major asset owners, but most are proceeding with a high degree of caution and setting clear boundaries around what the technology is and is not permitted to do, while resisting the temptation to allow AI to dictate organisational change.

Global head of digitalisation and innovation at the €577 billion ($606 billion) APG Asset Management Peter Strikwerda told the Top1000funds.com Fiduciary Investors Symposium at the University of Oxford that the opportunity for AI is “large throughout the whole investment chain”.

“The reason for that is quite simple,” he said. “AI, as is, is good at processing data; is good at processing unstructured data, especially; is good at efficiency gains. We don’t make chairs or tables, we work with data, being investors.

“That is a good starting point to look at all the opportunities. The challenges are, even so, big. Outside of technical ones, there are cultural and organisational ones…and what is in between, I think what is paramount is don’t take a technology push perspective here.”

Strikwerda said the big hyperscalers are investing tens of billions of dollars a quarter and pushing the use of the technology on users whether they want or need it or not.

“[It] is going to be pushed forward, but never use it as a tech-push in your organisation,” he said.

“We can build the smartest hammer that you have, but if you need to put a screw in, I mean, where are you at?

“That’s the AI stepping in and taking over. But the other side of that equation is look at your business challenges and then see how to smartly apply it. And some, I think, great examples are in, for example, responsible investing, where we have a lot of data challenges, on data quality and data availability; on standards; on ethics; anything. So I think AI has a great role there and we have some great examples already there on the sustainable development investments.”

Investment risk and data manager for the DKR230 billion (32.4 billion) Industriens Pension Fund, Julia Sommer-Legaard, told the symposium the fund has started using AI to support asset allocation decisions, but does not leave the technology to make decisions unsupervised or unchecked.

“We have always had a model for [asset allocation], but now, using AI, we could actually develop a much more complex model,” Sommer-Legaard said.

“We have basically fed PDFs and articles to chat GPT and to Copilot and made it write the code. What can be dangerous about this is if you don’t know coding yourself, you wouldn’t know if it actually did it right. The strategists in my firm and myself, we have a lot of coding experience, so that’s how we make sure that the coding is actually right.

“Then, understanding the mathematics, of course, too. Also developing an internal model. We wouldn’t have the resources for that, being two people, so it has helped a lot in that sense.”

Sommer-Legaard said it is critical for asset owners to combine the outputs from AI with human knowledge and experience.

“We are not just trusting a model and trusting the mathematics, we are combining it with human knowledge from the portfolio managers,” she said.

“You can never use an AI model just by itself. You need like, the 20 last per cent from human interaction and human knowledge.”

Sommer-Legaard said asset owners must also be able to fulfill their fiduciary responsibilities as investors and be able to explain or demonstrate how AI has produced the results or the investment inputs that it has.

“Investment managers, our CIO, everyone needs to understand this is not just a black box,” she said.

“We understand what’s happening, so that’s one of the issues. But since it’s leaning towards our normal model, then it hasn’t been that big an issue. But it could be an issue when we want to use it for other things.”

Robeco deputy CIO and head of quant investing and research team Weili Zhoulso touched on fiduciary responsibilities and the challenges that are created by using AI to make decisions or generate investment proceed inputs from vast oceans of data. Zou said that every two years the volume of new data created is equal to the sum of all data created in human history to that point.

“The amount and dimensionality of the data that is available is amazing,” Zhou said.

“It’s not only the stock price movement, volatility, it’s what the CEO is saying, what news and policymakers are doing, what’s the sentiment from a client and leaving a review on eBay, on Amazon; all these information actually are relevant, sometimes, for the decision making of investment.

“This is a blessing and curse at the same time, because do you have the power to process it? Can you see what is noise and what’s relevant and what’s irrelevant? And that also requests you to have a very strong infrastructure.”

Zhou says the output of an AI model is one thing, but investors need to look well beneath the surface.

“Is your AI industrialised, is your AI auditable, is your AI result-repeatable?” she said.

“If you’re sued…are you able to prove where [decisions] come from and what recommendations were made?

“That’s putting on a lot of requests on the whole infrastructure and the governance around it.”

At the end of the day investing remains largely a human-based activity, even though it is increasingly being augmented by AI. APG’s Strikwerda said that must always remain the case.

“If we trust technology [blindly] and stop thinking, we’re in deep trouble,” he said.

Global defence spending has jumped 18 per cent this year and is on track to reach as high as $3 trillion per annum by 2030, as the globe grapples with the largest number of active conflicts since World War II and a record number of forcibly displaced people.

Governments are preparing for a decades-long battle for power that will impact trade, economic policy, and military and defence strategy, according to Simon Henry, managing director and portfolio manager at Wellington Management.

The fragmentation of global power, alongside climate change and the rise of AI, has been identified by Wellington as major generational changes that will impact markets for decades to come.

“Geopolitical friction and great power competition will lead to a much higher prioritisation of national security, and one clear knock-on effect is going to be the structural rise in global defence spending,” Henry told the Fiduciary Investors Symposium at Oxford, UK.

“Governments around the world are recognising these tensions, and the burden is increasingly on individual countries to defend their borders.”

While defence ticks a lot of boxes for investors, given the sector’s strong medium-to-long term growth outlook and favourable political tailwinds, Henry acknowledged the challenges of investing in defence from an ethical and sustainability perspective.

“In an ideal world, this wouldn’t be a theme that is compelling. No one wishes for war. In our discussions with investors however, there is an increasing recognition that it is essential to modernise defence capabilities to protect national interests and, hopefully, reduce the likelihood of conflicts in the future.”

In addition to war and geopolitics, climate change also poses a major threat to long-term national security. According to Wellington, the number of people displaced by climate change, particularly in the equatorial band, could outweigh the number of people forcibly displaced by conflict.

The consequences of this trend include mass migration, driven by, or leading to, greater levels of water stress and more extreme heat events.

Henry said action on climate change needed to extend beyond the energy transition to include adaptation.

“We talk a lot about slowing down climate change, but there isn’t much discussion about how to live in the new reality,” he said.  “Human beings will need to adapt. Economies need to prepare for much more volatile and extreme conditions.”

A greater focus on adaptation also provides some protection against the risk of governments and corporates failing to hit their emission reduction targets.

To achieve targets contained in the 2015 Paris Agreement, global greenhouse gas (GHG) emissions need to almost halve by 2030 and hit net-zero by 2050.

“Decarbonisation is going to take time. Renewables come with an intermittency that is very challenging from a grid perspective and the supply chain, particularly the solar supply chain, is heavily dominated by China, which is challenging from a geopolitical perspective,” Henry said.

“The longer the transition gets delayed, the more money must be spent on adaptation and resilience. The numbers are staggering.”

With climate-related risks, global conflict and technological advancement here to stay, investors needed to step back, think long-term and build targeted exposures into their portfolios, he added.

“The next 25 years will be full of disruption as we all navigate a changing world order, the impact of climate change, and the explosion of AI,” Henry said. In relation to this trend of continual change, Wellington’s Thematics Platform has identified around 20 investable themes. One theme includes investing in defence stocks. “There are about 50 pure play defence stocks, and they are underrepresented in broad market exposures, and they can come with quite interesting return opportunities and characteristics, particularly during periods of heightened geopolitical risk,” Henry said. Climate resilience is also a key theme, given the strength of the team’s conviction and how structurally underrepresented the theme is in investment portfolios.

“These changes sound like existential problems and somewhat dystopian at times, but they can provide compelling return opportunities, particularly in areas where traditional benchmarks and exposures are very light.”

Public policy can impact investor returns. Take the returns from building EV plants in the US for example, heavily influenced by America’s Inflation Reduction Act. Investors might have to lower the discount rate on the future value of the business: if credits disappear, returns will be lower.

“Public policy does matter,” said Brian Funk, global head of private capital at MetLife Investment Management, speaking at the Fiduciary Investors Symposium at Oxford in a session delving into the risks and opportunities of investing in private markets to support the energy transition.

Monique Mathys-Graaff, senior director, head of sustainability solutions at WTW, stressed the importance private capital plays in decarbonising the economy given the scale of what is required.

Private markets channel capital into specific economic outcomes. For example, flows into renewable energy have benefited from sitting in investors’ alternative allocations.

Joel Probin, head of investment management at France’s Caisse des Depots, the investment arm of the French state which counts La Post, France’s post office, and extensive real estate and utility holdings, as well as a public sector investment bank in its extensive portfolio.

Probin explained that Caisse invests in private markets in accordance with its purpose. Investments include long-term loans to social housing and local authorities. In private markets, it puts capital to work in private equity and credit and has pledged to allocate billions to climate change over the next five years, encompassing loans, private equity solutions and green bonds.

Funk estimated that given the level of government debt, governments and supra-nationals will only provide roughly one-third of the trillions of dollars required to meet the energy transition. “Private market solutions are required,” he told delegates.

Huge need for capital

Funk noted the importance of capital being deployed to hard-to-abate sectors like steel or shipping. However, financing a corporate journey from brown to green requires huge amounts of capital. For these sectors that require capex over a long-term return, credit makes a lot of sense.

Private credit investment is accompanied by a relationship between the asset owner and the management team. Discussions centre on the business model and how companies plan to achieve their aims, and if the technology is available. “Engagement in private credit markets is an advantage,” said Funk. Meanwhile, borrowers in the public credit market are familiar with answering questions about compliance.

He added that with more transparency and disclosure, investors can encourage corporations to think differently about their business models. “They want to lower the weighted cost of capital and overtime there will be positive ramifications on this.”

“We think private credit plays a really big role [in the transition]. Corporate private placement is a big book,” he added.

The debate widened to discuss the extent to which private companies are meeting their net zero pledges. And the extent to which investors that have committed to net zero are struggling to find the investments. For example, tech companies have erased their net zero commitments because they require huge amounts of energy to fuel the data centres that support the rollout of AI.

Delegates heard how fossil fuels will not disappear from the energy landscape even if innovative solutions appear. Every source of energy that has been superseded continues to exist. For example, oil and gas came along, but coal hasn’t disappeared – coal-fired power stations are still being built in China and India.

Delegates heard that renewables are difficult to feed into the grid and fossil fuels will likely remain part of the energy mix. It means carbon mitigation and removal will become more important going forward and science and innovation will grow in size. The world is “not going in a single direction” and investors shouldn’t expect displacement of existing sources of energy.

Mathys-Graaff reflected on the challenge of managing fiduciary assets according to different mandates. Some WTW clients will have a 40 per cent allocation to private markets, others just 10 per cent, making investing more in alternatives challenging. Still, private debt offers a compelling first step on the ladder.

Panellists also reflected on the challenges of measuring performance with current benchmarks. The tracking error and duration mismatch of private credit versus the available benchmarks is complex, and the ability of investors to measure their investment on a risk-adjusted basis requires reform.