Canada’s TTCPP Pension Plan became a stand-alone entity only three years ago. Top1000funds.com discusses the fund’s journey to independence and the evolution of the hedge-fund heavy investment portfolio with CIO Andrew Greene.

For pension plans exploring how to step out from under their sponsor and set up an autonomous organization, Canada’s TTC Pension Plan (TTCPP), the $7.8 billion defined benefit fund for employees of Toronto’s public transport network, offers a case study in the journey to independence.

Early pivotal decisions on route to creating a separate entity included TTCPP’s board deciding not to fold the plan into OMERS, the $124 billion fund for employees of Ontario government municipalities in an endorsement of its own well-established governance and financial health. In a next step, the leadership team (TTCPP hired its first independent CEO in 2016) worked with sponsors Toronto Transit Commission and the Amalgamated Transit Union (ATU) on the structure and transition of the spin off entity. It took until January 2019 for the new fund to launch.

In the early days, a skeleton team oversaw mostly fund of fund investments with the support of consultants, recalls chief investment officer Andrew Greene, who joined in 2017 from OPTrust as the first dedicated investment person.

Today, TTCPP continues to reduce its dependency on consultants and is growing its internal expertise. The investment team guard a healthy funded status and oversee a growth-orientated strategy that includes leverage and hedge funds in a model that has all the hallmarks of  Canada’s much larger Maple Eight.

Greene, who estimates the fund will hit around $10 billion assets under management by 2030 in line with its 6 per cent discount rate, is also pushing into private assets, growing the allocation to 16 per cent of AUM from 10 per cent as per the latest asset liability study.

Elsewhere the focus is on building a new level of transparency, control, and securing better fees with managers. In charge of its own destiny, more resources are also flowing into pension management for the first-time including communication, member outreach and IT, which were a lower priority when the fund was managed by the TTC.

“At first, I relied heavily on the CEO and consultants. We were only able to hire people after two years and the team is now six. The plan is to hire another two to three people over the next 18 months,” says Greene, a Chicago native who moved to Toronto 17 years ago. “Plans that outsource everything to consultants are not as satisfying for staff.”

leaning into Hedge funds

For him one corner of the portfolio that provides particular satisfaction is hedge funds, an 8 per cent allocation that holds a mirror to TTCPP’s evolution. Until recently, the strategy consisted of two fund of funds, but when one fund merged with another, and the other went out of business, Greene changed tack.

He hired a consultant and built a direct hedge fund portfolio that was cheaper and more concentrated, and is managed on a discretionary basis as the team has evolved and grown. The allocation targets high single digit returns, but what Greene particularly likes is the diversification benefits across asset class and geography, allowing TTCPP to invest across the capital structure, take a view on different time horizons and short investments that the team doesn’t like when the rest of the portfolio is long only.

The allocation’s maturity, plus new internal resources, mean restructuring the portfolio is ongoing and Greene is reappraising certain strategies. For example, he is increasingly circumspect of long short equity.

“Long short equity is the biggest part of the hedge fund market, but I find it difficult to navigate as often one is paying alpha fees for beta returns,” he says.

Instead, he wants to lean the other way, favouring fixed income, relative value, and convertible strategies, as well as strategies that can work across the capital structure to find dislocations or take advantage of equities and bonds no longer being in sync.

Restructuring will also involve reducing the number of managers. When Greene took the helm TTCPP invested small parcels of around $5 million across 20-odd funds in an approach designed to open the door with managers, providing the opportunity to top up when a space appeared with sought after partners. It took a number of years, but now TTCPP has a full position with several top tier funds. “By the end of this year we will be down to 14 hedge funds, using fewer managers in a more concentrated portfolio.”

TTCPP typically writes cheques of $20-40 million while the consultant leans on funds to get a discount where ever possible – although Greene says the only managers that really offer a discount are smaller and starting out. Still, he notes some openings to reduce fees. For example, one of the macro managers that was underperforming has lowered its fee until they get back to the high watermark.

It’s a slightly different story away from hedge funds. Greene observes that the investment climate means more managers are open to renegotiating fees.  The denominator effect, whereby many investors (particularly endowments and foundations) are pulling back on investing more in alternatives because these portfolios have not been marked down as much as public assets, is creating opportunities to invest with sought-after GPs.

“Names that we had trouble getting in with before are now more open to discussions. It is a good opportunity, and we are buying at better prices. Prices in private markets are still going down and we have better access to GPs and terms than we would normally have.”

Leverage and higher yields

TTCPP uses leverage at a total fund level and can lever up to 10 per cent of the fund. Today the higher cost of borrowing means Greene is paring this back to around 5 per cent. “Leverage is costing me 5 per cent instead of 1 per cent and given our funded status is better because yields have gone up significantly, there is less need to take the incremental risk.”

Leverage is primarily used to invest more in market-neutral, low-beta hedge fund strategies. However, Greene says he doesn’t directly map where the leverage is applied – rather it is an extra 5 per cent to invest across the fund wherever the opportunities arise.

The funded ratio and higher yields are also driving other strategies. For example, he is trimming the public equity allocation to 20 per cent of AUM and in its place, Greene will bump up the allocation to private equity and put more assets to work in public credit, including investment grade, multi asset, high yield and bank loans, where he says it’s possible to tap equity like returns without the volatility.

Growing the allocation is timed around opportunities, he continues. “We are moving into credit, but credit spreads remain tight. When the spreads start to widen, we will increase the high yield allocation, but we will pull it back as the spreads come back in.”

Elsewhere he has lengthened the duration on some of the bond portfolio (from mid to long-term) in response to higher yields. “You can get a 4.5 per cent return sitting on nominal bonds and we like the liquidity too,” he says.

The strategy is a marked change in direction from an earlier decision to reduce the long bonds allocation to zero. As it was, the allocation never got to zero, was only reduced by 5 per cent, and is now being built back up again as interest rates climb higher.

For all his focus on building internal expertise and reducing input from consultants Greene only applies the approach when it fits and doesn’t envisage TTCPP running a large pool of direct investments. Direct allocations comprise a small portion of private equity, a quarter of the private credit portfolio (although he notes the bulk of this comprises one large deal) and some co-investment in infrastructure. In the real estate allocation, where TTCPP invests around 80 per cent of the portfolio directly in Canadian assets, he wants to turn the portfolio on its head.

He plans to transform the real estate allocation into fund of funds or SMA structures and select co-investments with GPs in an 80:20 split respectively. A complete reversal from the current approach where co-investment make up the bulk, and funds the minority. “We have two people working in private markets covering four asset classes and we simply don’t have the capacity to approve every new tenant or budget item. With a small team there are only so many line items we can keep track of.”

But it is a challenge restructuring real estate in the current environment when industrials are white hot, but office is struggling. “We are very hesitant to sell office assets right now. Nobody will buy them unless we sell for a deep discount which we do not think is prudent.”

It speaks of a pragmatic strategy and overarching priority to keep things simple. Greene refuses to chase new asset classes and strategy – he was cynical of Bitcoin from the get-go and TTCPP only has a tiny exposure to crypto though a sleeve in one of the macro managers. The fund has no plans to run other assets or amalgamate with others like the tie up between College of Family Physicians of Canada (CFPC) pension plan and the College of Applied Arts and Technology (CAAT) Pension Plan.

“We are just focused on getting our own ship in order,” Greene concludes.

 

Border to Coast, the UK’s LGPS pool for 11 partner funds, is planning to launch a new UK opportunities strategy that will invest in private markets opportunities in-country, including venture and growth. The allocation will sit in Border to Coast’s existing £12 billion private markets allocation that includes £4.3 billion in infrastructure and £3 billion in private equity.

The multi-asset UK strategy will target areas such as corporate financing, housing, property, infrastructure, renewables, and social bonds. The nature of underlying investments will also result in a range of positive impacts, including jobs created, new housing units delivered (residential, affordable, social, assisted), new commercial floor space, delivery of local infrastructure, renewable energy capacity and the provision of training including apprenticeships.

Subject to ongoing engagement with its partner funds the UK opportunities strategy will launch in April 2024.

“I am particularly pleased with the team’s work with partner funds on our innovative ‘UK opportunities’ strategy, which will facilitate investment leading to the generation of a range of positive local impacts, such as new jobs, infrastructure, and economic growth across the regions of the UK, while providing returns to fund pension obligations,” said chief executive Rachel Elwell, who has overseen the build out of the organisation to 130 employees and £47 billion of pooled assets (of the £60 billion in total funds between the underlying partners) since it was set up five years ago.

The move comes as the British government puts pressure on pension funds to invest more at home to support economic growth. Today, UK pension funds invest almost £1 trillion in the UK through a mixture of UK shares, corporate bonds, government debt, and other asset classes.

Investing more in the UK for growing LGPS and DC funds like NEST may make sense, but for many DB funds it’s not that simple. Many are still reeling from last year’s gilt crisis when the market froze over, and it was impossible to trade. The unprecedented volatility in gilts has seen these funds build new risk models into their portfolios that incorporate much bigger moves in gilts prices. This in turn has implications for how much they are prepared to invest in illiquid assets, running counter to the government push.

In a recent paper, industry body PLSA identified 10 ways to encourage UK pension funds to invest more at home. ‘Pensions & Growth: A Paper by the PLSA on Supporting Pension Investment in UK Growth’ suggests fiscal incentives, policy certainties and increased automatic enrolment contribution levels would help.

Border to Coast is midway through designing two global and two UK real estate propositions. They will lead to further increases in the level of assets under management and are expected to launch later this year. Other new strategies on the horizon include the development of a second climate opportunities portfolio. The investor currently has £1.4 billion invested in climate opportunities.

efficiency gains of Pooling

Border to Coast has pooled 83 per cent of assets owned by its 11 LGPS partner funds, with pooling on target to deliver savings of £340 million by 2030. Meanwhile, research by asset management data company ClearGlass Analytics into value for money, ranked Border to Coast number one in its efficiency scheme index of over 1,000 pension schemes.  The analysis showed its leading position is due to its scale, governance and its blend of internal and external management.

About a third of assets are managed internally, a third externally and a third in a hybrid model for private markets where Border to Coast is selecting funds but acting as a fund of funds managers.

“Five years into our journey, we are exceeding the original ambitions for pooling,” said Chris Hitchen, chair of Border to Coast. “With 83 per cent of our partner funds’ assets pooled we have been able to deliver over £65 million of savings net of set up costs with more to come.  But perhaps more importantly, we have built a sustainable centre of expertise in Leeds delivering innovative and effective investment solutions for our partner funds.”

 

 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.