スイスのジュネーブ州年金基金（CPEG）最高投資責任者グレゴワール・ヘーニ（Gregoire Haenni）氏は、日本株を選好していると述べた。依然として緩和モードの日銀金融政策や、足元のインフレ傾向にも関わらず良好な国内消費動向、企業のガバナンス改善姿勢、魅力的な配当利回りなどを理由として挙げている。日銀が利上げに動けば日本株は調整する可能性があるが、株価下落局面での購入を狙っているという。
The $23 billion pension fund of the state of Geneva in Switzerland is favouring Japanese equities and seeking opportunities to acquire them when prices decline amid factors including attractive dividend yields, the monetary policy by the Japanese central bank and stable consumer habits.
Gregoire Haenni, chief investment officer at Caisse de prevoyance de l’Etat de Geneve (CPEG), said in an interview on the sidelines of the 17th Global Fiduciary Symposium in Tokyo that CPEG maintains a significant allocation to Japanese equities and has plans to persist in their investment.
Japan’s Nikkei stock average has gained 25 per cent so far this year, outperforming the performance of the MSCI China index, which has declined 11 per cent and the S&P 500 which has climbed 15 per cent.
The pension fund holds a bullish outlook on equities, particularly in Japan.
“Within equities, we like Japanese equities,” Haenni said. “One reason is that the BOJ is still in the normalization mode and not in the tightening mode, which is favorable for Japanese equities,” he said.
Haenni said consumption is an important component in contributing to Japanese gross domestic product but the country’s consumers lack an inflation mentality, indicating that stable consumer habits are playing a role in boosting the resilience of the economy.
Additionally, there is a positive trend in promoting corporate governance in Japan. “Top management is increasingly aware of shareholders’ benefits,” Haenni said. “In the past, we’ve seen many false starts in Japan, but this time we are seeing a favorable opportunity.”
The chief investment officer noted a capability within Japanese companies to foster value and growth. In contrast to the US, where challenges are seen, especially to “Magnificent Seven” artificial intelligence growth stocks, Japanese corporations demonstrate more capacity for generating value.
Japanese companies are gradually increasing prices after absorbing inflationary pressures. Such moves are expected to increase profitability by incorporating inflation into their pricing, Haenni said.
CPEG holds a positive outlook toward companies, particularly those aligned with the green transition. “Japanese institutional investors should consider investments in sectors that support net-zero commitments,” Haenni said.
Meanwhile, CPEG views currency risk as a significant concern, with a lower yen potentially leading to inflation due to increased import costs to weigh Japanese equities.
Regarding BOJ, CPEG anticipates that it is likely to address inflation and tighten its monetary policy. This move could dampen market sentiment but the rate hike is expected to proceed gradually. The BOJ is expected to slowly adjust its yield curve control (YCC) policy and adopt a less aggressive policy compared to other central banks, he said.
With inflation already exceeding the BOJ’s 2% target for more than a year, the central bank tweaked YCC in October to allow long-term rates to rise more, a move seen by markets as a step toward phasing out its huge stimulus.
In the event of a significant decline in Japanese stocks, CPEG would treat it as an opportunity. “Japanese equities will correct at some point but it’s a good strategy to buy when there is a correction,” Haenni said.
In his first public comments since being named chief investment officer of Australia’s sovereign wealth fund in August, Ben Samild has said fostering a team culture of “purpose and joy” is among his top priorities.
“I genuinely love everyone who works for me,” Samild told Top1000funds’com’s sister publication, Investment Magazine which reports on the Australian institutional investment market.
“I’m genuinely interested in who they are and what they do, and I feel an incredibly deep responsibility to them to have a similar experience as I have done within the confines of this organisation.”
In a candid and at-times personal address, Samild – who studied neuroscience and joined the Future Fund in 2013 to head the debt and alternatives portfolio – projected a kinder, gentler image of an investment sector leader, rejecting what he said were “macho” tendencies to underrate soft skills and focus only on hard-nosed commercial performance.
“The industry is immersed in the language of competition, finance as a ‘battle’,” he said. “We need to outmanoeuvre, outflank, starve our opponent of opportunities, ‘seize’ the high ground and ‘dominate’ our opponents. It’s tempting to relent. It is easy to give in to this militaristic language and culture.
“But history and life teach us that there is far more to life than conflict. We spend far more time creating, collaborating, interacting constructively, and pursuing our passions and our curiosity than we do fighting.”
Instead, he said his aim was to oversee a joined-up portfolio construction that was founded on “connection and inclusion … questioning and re-testing”. Samild revealed he has appointed all of the fund’s sector heads (and above) to the investment committee.
“This encourages active ownership, participation and contribution … It’s vital to that sense of curiosity and collaboration that we want to foster.
“This is definitely not the textbook ideal size for efficient decision making. But at its core, our style of investing makes a deliberate trade-off between efficiency and effectiveness. Effective in our context as a long-term asset owner is not necessarily always efficient.”
At the same time, he made clear his key focus was still on “superior long-term investment returns”, arguing a more collaborative and curious team would help generate that outperformance. He rejected common criticisms of his softer approach – which he said could often be reduced to “some form of ‘show me the money’” – saying it was possible to achieve a difficult mandate while still inspiring purpose.
“Knowledge accumulates through those processes and then through questioning and re-testing,” he said. “The same applies to investing and I want to create a virtuous circle to outcomes. If I have to get kicked out of the macho finance leadership club then so be it, that’s not a club I ever wanted to join the wait list of.”
Samild, who worked in the US in the early 2000s at a macro fund operated by Elysium Technology, said he wanted to create the “opposite” culture to many hedge funds, which he described as “Darwinian” and “brutal”.
$65 billion resilience reform
Samild also said he was prioritising portfolio resilience, echoing his predecessor Raphael Arndt’s thesis that inflation will be persistent and higher for longer.
He revealed the fund had made $65 billion worth of investment decisions over the past three years aimed at defending the $250 billion portfolio against a slew of market headwinds.
“Inflation moving higher, rates following that trend; changes in the geopolitical order; more conflict; the challenge of climate change and re-designing the global energy system, and fiscal expansion are among the big themes we see as the most important influences on our daily investment decisions. Most, if not all of these structural forces have come to pass or are at least developing,” he said.
“In the face of this we have tried to build as much resilience into the portfolio as we can while we try to work through big questions like, what level of real rates can the international economy and global government finances sustain?”
He said he stuck by the fund’s argument in a white paper last year which heralded the “death of traditional portfolio construction” based on a 60/40 asset allocation. Asked whether the 60/40 portfolio of equities and fixed income may have rebounded amid higher bond yields, he said it was true that the market had improved, but was still unsure bonds will play their traditional role in providing defence.
“If they’re fundamentally changing their role in the portfolio, and there are reasons to fundamentally doubt the correlation benefits of holding these assets, then they just another asset, and … compete with every other asset on the basis of risk and return.”
Asked about pressure on the fund from both sides of politics – with conservative think tanks calling for the fund’s abolition and Greens urging it to adopt a net zero emissions target and divest fossil fuel companies – Samild said it was appropriate that a sovereign fund attract scrutiny.
“We should have to constantly justify the value we are earning over a reasonable period,” he said, but warned taking in more of an impact objective would require legislative change.
“We have a mandate, which is governed by legislation, which is given to us by the government, that is intended to represent [the whole Australian community] as best it can … we invest to the mandate we’ve been given.”
Asked about the appointment of a new chairman of the Future Fund’s Board of Guardians, expected to replace Liberal treasurer Peter Costello early next year, Samild said only that he would be “shocked if it was not a woman”.
With the right governance models pension funds can play a role in broader societal issues, such as mental health in the workplace, while still delivering financial security for members.
A unique “democratic governance structure” at the Danish Velliv Association allows it to manage multiple objectives – delivering value to members and focusing philanthropic efforts on mental health in the workplace – chief executive Lars Wallberg told delegates at the Sustainability in Practice conference at Oxford University. The commercial Danish pension fund Velliv is 100 per cent owned by its 400,000 members after its holding company, Velliv Association, purchased the remaining shares of the company from Scandinavian bank Nordea in 2019.
It works with a board of representatives – effectively 50 individuals elected by and from among the members – and a board of directors consisting of seven board members and two deputies from the association. The board, on behalf of the members, voted to distribute 80 per cent of profits to members, with 20 per cent donated to philanthropic activities.
“We, the owners, keep at arm’s length when it comes to the company’s operations,” he told the crowd. “80 per cent of our profits is distributed to our members as a cash bonus annually, which has amounted to €200 million since we started in 2018. It’s been quite popular, which is one way of showing the difference between a company being owned by a bank and owned by the customers.”
“20 per cent of the profits are donated to philanthropic activities that promote mental health in Denmark. That amounts to about €50 million since 2018, which makes us one of the largest actors in this area.”
The philanthropic arm is partially a result of the inability to make mental health “investible”, according to Wallberg, who also is the chair of two other foundation that are experimenting with creating investment opportunities around workplace mental wellbeing. The problem lies in measurement.
“This is a philanthropic activity, we give money, and we don’t get anything in return,” he said. “The measurement problems at stake are massive, because measuring impact in the ‘E’ or the ‘G’ [in ESG] might be possible, but the ‘S’ and especially when it comes to mental health is very, very difficult.”
Velliv Association is often questioned about why it spends the time and resources on workplace mental health, when Denmark is known as one of the happiest countries in the world, Wallberg admitted. But he said his experience and underlying data from the company paint a completely different picture.
“I would challenge that [notion of the happiness], because it’s not how our teens would describe themselves. We’re not that extroverted and emotional, normally. Yes, Denmark is a very privileged country and a wonderful place to live and work, but we have our challenges anyway.”
Meanwhile, Velliv’s own pension statistics also suggested that stress, anxiety and depression are among the biggest factors behind people leaving the job market for a short or long period, accounting for about 50 per cent of all the disability payments made by the company.
In some way, Wallberg said the pension and philanthropic arms are helping each other out – the former on a client level and the latter on a societal level – and reiterated the importance of bringing more visibility to mental health issues.
“One of the good things is that leaders in the very hard driving sectors, such as financial services, many of them are much more open to the challenges that they have mentally, both as persons and as professionals.
“If you have a broken arm, your colleagues can say: ‘Sorry about that. What happened?’ But you both know in a few weeks’ time, you will probably be okay. But stress, anxiety and depression… How do you go to your boss and say: ‘Sorry, I have depression. I don’t know when I’ll be back’? We have a long way to go here.”
Private equity has the potential to play a strong role in decarbonising portfolios, but many funds are lagging both in transparency and in action towards net zero, investors from Harvard and Oxford endowments and the French fund Caisse de Depots said in a panel discussion looking at the challenges of integrating sustainability in alternative asset classes.
Private equity is, in theory, the best place for investors to improve carbon metrics, said Joël Prohin, head of the investment management department at French public sector financial institution Caisse des Depots. “Usually the GP has a majority stake in the company, he has the possibility to impose to the management some changes, some triggers.”
But “in practice they are lagging behind,” he said, as often public companies are carving out carbon intensive assets and selling them to private equity. “And so you have the burden which is transferred from the public space to the private space.”
Speaking at the Sustainability in Practice conference, organised by Top1000funds.com and held at Oxford University, Prohin (pictured) said Caisse des Depots manages its listed investments internally, but delegates its private equity investments to GPs, which makes it hard to have a direct impact on the private companies and their practices.
While many private managers will publish green reports, this is “not the main focus they have,” and while there are often many LPs in different countries, they have not been able to organise to push the GP towards action, he said.
Investors hand over significant fees to private equity funds without expecting the same reporting standards as they require from global listed asset managers, he said. “Could we not ask private equity managers to devote a little part of the huge amount of fees we are allocating to them, to hire people devoted to biodiversity, climate, social issues?”
Olivier Lebleu, senior adviser at not-for-profit organisation FCLTGlobal, said private equity has a large role to play in dealing with investments that promise strong returns but add higher carbon intensity to a portfolio.
“The time horizon match between what’s required for successful decarbonisation and actually realising the return potential is best met by investment structures that have a long-term horizon embedded in how they build their investment programs, such as with private equity or private market managers, broadly defined,” Lebleu said.
It also should be much easier than with public markets to achieve alignment in private equity governance structures, he said, “through easier bilateral discussions between LPs and GPs than you could have between shareholders of a public company and its board.”
Having the right incentives usually leads to better outcomes, he said, including adding a decarbonisation target next to a hurdle rate and “making it not an either/or but an and/and”; triggering catch-up fees once decarbonisation targets have been achieved; and increasing or decreasing incentives based on whether decarbonisation is met faster or slower than the plan.
Antonia Coad, head of sustainability at the Oxford University endowment, said the endowment tends to “avoid anything [in private equity] that we can source on the public markets, so our private equity is often smaller companies who would struggle on the public market.”
Looking at sustainability and ESG “simply through the eyes of risk,” the endowment does ESG due diligence before investing in a group to ensure alignment.
“We actually have pretty excellent look-through in terms of across our whole portfolio into the companies that they are investing in,” Coad said.
Michael Cappucci, head of sustainability at Harvard Management Company in the US, discussed some of the difficulties university endowments face in obtaining the data necessary to publish carbon intensity numbers, with much of their alpha coming from alternative asset classes.
Renowned geopolitics professor Stephen Kotkin remains an “unbelievable optimist about where the world is,” despite the ever-present potential for catastrophe.
Kotkin described the benefits science and development have brought to humanity while simultaneously warning investors of the massive uncertainty the world now faces, in a discussion at the Sustainability in Practice conference, held at Oxford University and organised by Top1000funds.com.
“The world is in amazingly good shape…the amount of creation of middle-class in your lifetime is breathtaking,” Kotkin said. Despite terrible things happening in the world, the amount of violence in the world is much reduced compared to the past, he said, as is inequality.
However alongside these developments, the world faces unprecedented challenges from climate change, geopolitical power dynamics, artificial intelligence and other technological developments.
There has never been a directed energy transition in recorded history, Kotkin said, so if a transition to a low carbon world does happen, it will be unprecedented.
“This is a very high order challenge here,” Kotkin said. “Social engineering has a historical record of producing very perverse and unintended consequences.”
Little has changed in what we eat, where and how we live, and how we move, which are the three things the transition aims to change, Kotkin said. Some changes, such as the move to electric cars, are yet to be effective.
“Electric cars, of course, are worse for the environment than the current system unless you own the electric car for at least eight years,” Kotkin said. “And then you are neutral environmentally if you’ve owned it for eight years. Nobody owns an electric car for eight years.”
There is also no way to recycle or dispose of their components, and a lot depends on how the electricity to run the car is made.
Key assumptions used in forward projections about decarbonisation are flawed, he said. The zero interest rate world of recent years is “long gone,” and so is the world of outsourcing, cheap logistics and interconnectivity where “your supply chain looked like it could be as long as possible and it didn’t matter.”
In recent years the world has faced a destabilised truth regime where fakery is increasingly becoming the norm; widespread theft of information in the name of aggregation; and creaking security at odds with the internet’s goal of interconnectivity, he said. But markets must now brace for artificial intelligence to turbocharge everything, Kotkin said.
“It’s going to affect how we live and what we build and it’s going to affect how we move,” Kotkin said. “It’s going to have effects that are much greater than the previous effects. But part of that effect is the continued destabilisation of the information space, the truth regime and we’re now living in that, it’s already done.”
He pointed to other challenges brought by technology. Quantum technology is rendering obsolete things like submarine stealth through the use of quantum sensors. AI models are able to code protein folds and potentially give bad actors the ability to create pathogens. Only a small fraction of STEM talent goes into public service, and governments are struggling to keep up with regulation.
In the geopolitical realm, a lot of risks are unpriceable, such as a world war triggered by a Chinese invasion of Taiwan. With ancient civilisations with autocratic governing systems opposed to the US-led world order, vulnerable points like Ukraine and Israel will be tested again and again with the risk of conflicts escalating.
Despite the challenges it brings, science has brought incredible benefits like vaccines, better industrial processes, and biotechnology applications to food and energy, Kotkin said.
“So I’m an unbelievable optimist about where the world is despite what I know about the science and about the geopolitics.”
“I think the geopolitical thing is manageable, I think it just takes leadership,” Kotkin said. “Unfortunately with 160 million Americans eligible to be president, somehow it ended up being the current two main candidates.”