Lægernes Pension, Denmark’s DKK100 billion ($14 billion) pension fund founded in 1946 for medical doctors has just completed a series of tech investments to further sharpen its investment processes.

As the complexity of its investment process grows in its active, strategic, and tactical strategy so has its technology spend in a trajectory that is increasingly viewed as pioneering for the little-known pension fund with a small internal headcount.

Lægernes Pension’s latest tech investment is focused on boosting data management in its systematic strategies to improve due diligence, portfolio modelling and reporting. The systemic allocation is part of a liquid overlay designed to improve the risk-adjusted return of the overall portfolio.

The new technology streamlines data coming into the investment team from the fund’s asset managers and banking counterparties, explains Michael Daniel Andersen, head of portfolio construction who has overseen the introduction of the technology with service provider Premialab. All Lægernes Pension’s strategic and tactical asset allocation is managed in-house, apart from security selection which is managed externally bar an allocation to Danish bonds and inflation linked paper.

Granular data is channelled into one, standardized format comprising everything from performance and risk metrics to exposure levels across every position in the fund’s systematic strategies. Everyone in the investment team can see the results of the data and check their risk exposures describes Andersen, who joined Lægernes Pension as an analyst in 2017.

“We have a large exposure to systematic strategies relative to other European pension funds and are quite pioneering in how we view the allocation,” he says, predicting that one of the most important new data sets about to come down the pipe will be natural language processing revealing what people are reading and researching to offer valuable new investment signals. “It could provide a new way to invest. It’s early days, but I think it will be one of the most exciting developments.”

Risk

Lægernes Pension’s systematic strategies comprise more than 1000 different underlying positions that are too extensive for the internal team to oversee. Risk modelling is based not only on asset classes but also risk factors like liquidity, growth, inflation and interest rates. The new technology has allowed the fund to reduce volatility in the overall portfolio and has helped avoid some of the most severe drawdowns of 2022.

It allows the investment team to see into exposures, offering granular detail on which allocations are doing well and which are doing badly, he says. It also flags the risk of overlapping exposures in a strategy that aims to have exposure to every factor – but avoid the duplication that typically spike during large market moves.

“Risk exposures in complex strategies change all the time, and during large market movements some of the systematic strategies could end up with the same positions,” he says. “This technology helps us identify what the risk exposures are and reduces the amount of time we spend monitoring the process providing us with the broadest amount of data to make decisions.”

The technology is also supporting Lægernes Pension’s portfolio construction which is also set according to risk exposures and factors. “We use the technology to outline what the main risk exposures are and this helps us perform quicker analysis when we need to change things. We are now able to implement at a much faster pace, despite being a small firm. We would have a hard time taking on the risk if we didn’t have this – we would have difficulties handling it internally on the ground.”

Tactical

Away from the overlay portfolio, a tactical asset allocation is also a key driver of returns and shaped according to the business cycle and monetary policy taking a 6 – 12-month view. The investment team also run an equity sector selection model in house which goes long or short some equities as part of the strategic process – also driven by the business cycle. The strategic asset allocation includes bonds, listed and private equity and real assets with around 28 per cent of the portfolio in illiquid assets. An infrastructure allocation comprises mostly renewables and digital infrastructure.

Andersen’s key advice to others is to ensure robust governance so the investment team always know where they are invested and have access to the best tools to make the most informed decision. “Work with counterparties to help,” he says, concluding that technology will increasingly shape the investment process. “You will still need people to point the technology in the right direction. But investment teams will change how they operate and how people use their time,” he predicts.

In a positive stock-bond correlation world, balanced portfolios will be more volatile without the natural hedge that bonds provide to stocks in a negative correlation world. Nevertheless, diversification will remain a powerful tool to protect portfolios, according to Dr. Noah Weisberger, Managing Director in the Institutional Advisory & Solutions (IAS) group at PGIM.

The “free lunch” provided by 20 years of negative correlation between stocks and bonds is over, balanced portfolios will become more volatile, and there are few options for investors to engineer portfolios away from this new paradigm, according to an expert at PGIM (the global investment management business of Prudential Financial).

Noah Weisberger, Managing Director in the Institutional Advisory & Solutions group at PGIM, said the “efficient frontier” of optimal portfolios will shrink, and in this new regime“ there are some combinations of risk and reward that just are no longer attainable as you build a portfolio of stocks and bonds.”

Weisberger previously authored two papers that analysed the drivers behind negative and positive cycles of stock and bond correlation. Having concluded that the current macroeconomic environment seems supportive of an extended period of positive correlation, a newly released third paper looked at how investors should adjust their portfolios in response.

The answer is that optimal portfolios in a positive correlation world will not be very different from optimal allocations in a negative correlation world, Weisberger admitted he was surprised by this finding.

Critically, he added, performance of balanced portfolios will be worse on several metrics, and investors will be “stuck with the facts on the ground.” “Within the narrow context of a balanced portfolio of stocks and bonds,” Weisberger continued, “there’s not a whole lot you can do to mitigate that performance deficit.”

In response to this new investing environment, risk-averse investors may respond by slightly reducing their exposure to stocks. However, perhaps counterintuitively, investors that are less risk-averse may decide to lean more heavily into stocks, with the understanding that “their portfolio is slightly more volatile, bonds are slightly less valuable as a hedge, and the way to compensate for that incremental risk is actually to increase the portfolio’s expected return by owning more stocks,” Weisberger said.

There may also be more room for additional asset classes that bring greater risk, such as commodities, aimed at compensating for greater volatility, he said.

Weisberger warned against using 2022 as a paradigm for markets going forward. The wholesale re-rating of both stocks and bonds in tandem was highly unusual, he said, and investors should not assume the continuation of persistently negative returns for both asset classes.

“In 2022, the performance of a balanced portfolio was less about the shift in correlation from negative to positive,” Weisberger said. “It was much more about really bad realised returns.”

He noted stocks and bonds will likely not be very highly correlated even in a regime of positive correlation, and “there’s plenty of room even within that positive co-movement for the two assets to be diversifiers.” Moreover, with history as a guide, even in the context of a positive correlation regime, bonds could still outperform when equities underperform during crisis periods due to a “flight to quality,” he said.

Unless the terrible returns of 2022 continue, which is doubtful, we are unlikely to witness the death of the 60/40 portfolio, he said. “A portfolio with multiple assets that are moderately correlated still is the right place to go for a risk averse investor.”

Weisberger’s previous research found stock bond correlation regimes are very long lasting, with the current 20-year period of negative correlation following almost 30 years of positive correlation from the late 60s. They are also very similar across developed markets, which typically move together.

Those papers concluded that periods of positive correlation tended to coincide with concerns about fiscal policy sustainability, concerns about monetary policy independence where monetary policy “seems to be driving the cycle as opposed to responding to the business cycle,” and where “investors are re-rating risk in tandem across asset classes.”

A world of positive correlation between stocks and bonds leads to more volatile portfolios, impacting the performance of a balanced portfolio, Weisberger said. This is not because stocks or bonds are more volatile themselves, but because portfolios will no longer be benefitting from the stronger built-in hedge provided by the negative correlation between these two asset classes.

In a world of positive stock-bond correlation, “portfolio managers and CIOs should expect their balanced portfolio to have higher per period volatility, they should expect their portfolio to have a wider range of risk-adjusted returns–even over long periods of time, a wider dispersion of terminal wealth outcomes, deeper drawdowns, and greater probability of ending a given period of time…in the negative,” Weisberger said.

Like many UK pension funds, Belgium’s KBC Pensioenfonds, the pension fund for the banking and insurance group, runs a large LDI programme. Introduced in 2007 to protect against falling real interest rates and rising inflation, around 30 per cent of the €2.9 billion portfolio is invested in LDI and the fund has a leverage level of 200 per cent.

But unlike the thousands of UK pension funds with LDI strategies that had to fire-sell assets during the recent gilt crisis, KBC doesn’t have to post cash as collateral. Instead, it can post government and covered bonds and doesn’t risk having to sell assets if embroiled in a similar market turmoil.

“We don’t have the same issue with collateral as UK funds because we can post bonds – we don’t have to post cash and wouldn’t ever have to sell high quality assets as collateral,” explains CIO Luc Vanbriel, who estimates it would take an additional 3-5 per cent jump in bond yields to force the pension fund to sell corporate bonds or decrease the swap notional values to meet margin calls.

In September’s gilt market crisis, yields spiked across maturities (some up around 1.5 per cent at the height of the crisis) following former prime minister Liz Truss’s mini budget. It forced thousands of UK pension funds to fire sell assets such as bonds and equities to meet collateral calls from banking counterparties.

One of the hardest hit, the BT pension scheme, BTPSM, revealed in its October annual report that the value of its assets fell by £11 billion during the market turmoil.  In a recent written submission to British MPs investigating the gilt market turmoil which has focused attention on the risks of hidden leverage, BTPSM said it had made changes to its LDI strategy in response to the crisis.

“We have become more cautious in how we manage the scheme’s liquidity and have increased the collateral buffer to which we operate,” it said. “This will position the scheme to better weather any further volatility in the gilt market but will also reduce the expected returns from our assets.”

Inverse yield curve

Posting collateral may not be as risky for KBC, but Vanbriel is mindful of other risks, particularly an inverse yield curve, the harbinger of an economic downturn.

“On the swaps, we pay a short-term floating rate and receive a long-term fixed nominal or inflation linked payment. An inverse yield curve is a risk because we would pay more than we receive.” KBC swaps the coupons on a diversified pool of highly rated bonds, and to limit the risk of an inverted yield curve, caps leverage at 200 per cent.

The LDI allocation is managed in an institutional mutual fund run by KBC Asset Management which also manages most of the pension fund assets although private assets are outsourced to specialist managers.

“We review the leverage level twice a year but in extreme circumstances we can adapt the level quickly,” he says.

In a dynamic approach, KBC can increase matching assets if the real interest rate increases. Elsewhere, if the funding ratio moves higher the level of hedging is also increased – although the leverage would always remain below 200%.

“We have a de-risking plan in case real interest rates rise or the funding ratio increases, whereby we will hedge more using swaps and linkers,” he says.

Vanbriel, who positioned the portfolio for higher inflation back in 2019, says the pension fund has been well protected thanks to an allocation to inflation linked swaps and an increased (to 15 per cent) allocation to real assets comprising infrastructure and real estate.

“You cannot eliminate the risk of inflation staying high for a couple of years,” he predicts.

Exposure

In another contrast between European and UK schemes, Vanbriel also flags the worrying exposure of UK pension funds to the government bond market. He estimates European pension funds only own around 20 per cent of the European bond market in contrast to much larger gilts exposure amongst UK pension funds, particularly to longer-term gilts, which helped create a vicious circle during the crisis.

“It’s a completely different picture,” he says. The UK’s Investment Association estimates that over the last decade, total assets in LDI strategies have quadrupled, rising from £400 billion in 2011 to almost £1.6 trillion in 2021.

Equity weights

In another strategy, Vanbriel is increasing the equity weights in the DC portfolio. KBC’s portfolio is currently split between a €2 billion defined benefit fund and two much smaller defined contribution schemes. The decision follows the latest ALM study (conducted every three years) and is based on a reworking of forecasted returns. Employers running DC schemes in Belgium must provide a minimum guaranteed return of 1.75 per cent at the end of an employee’s career.

“It is not really a typical DC plan due to this guaranteed return,” he reflects. The ALM study revealed that if the fund increases its allocation to risky assets, it increases its forecasted return without significantly increasing the risk to employers.

European angst

The increased allocation to equity will be global. KBC reduced its home bias two years ago following observations that the European allocation was more volatile and drawdowns in Europe had more of an impact and recovery took longer.  “We didn’t reduce it because we were negative on Europe,” he says.

Still, today concerns about the economic health of the continent are mounting. The euro has fallen in value along with valuations in European equity markets, down more than falls in the US. The pain is most acute in the KBC’s exposure to central European equities, he says.

Global diversification is also echoed in the private equity allocation. KBC has added a 2 per cent allocation to private equity in the DB portfolio to sit alongside a 34.5 per cent allocation to listed equity. Vanbriel likes the private equity allocation for its diversification from IT and pharmaceuticals in the listed space and ensures vintage and manger diversity.

“In private equity we don’t have a particular niche or concentrate in one sector. Each of the funds we invest in is global and sector diverse.” Currently overweight at 3 per cent because of performance, he has no plans to increase the allocation in the future.

ESG

KBC has also developed its ESG policy in recent months. The investor already limits its investment universe to the best performing ESG companies. For example, rather than investing across the entire MSCI North American index in its US equity allocation, it only invests in the top 40 per cent of ESG rated corporates in each sector. In a new seam, KBC now invests according to specific criteria based on corporate greenhouse gas emissions and sustainable development goals. The fund excludes all fossil fuels – but will invest in green bonds from the fossil fuel industry.

 

New Zealand Super has radically slashed the holdings in its passive equities portfolio as it re-aligns the portfolio with a Paris-aligned benchmark. It’s part of the fund’s shift to a sustainable finance focus which includes improving the fund’s already-good ESG profile and a more long-term future focus on impact investing.

The decision on what benchmark to use is important for asst owners, and never more so than when they seek to achieve a net zero or sustainable finance target. New Zealand Super recently decided to change the benchmark of its large passive equities portfolio to a Paris-aligned benchmark as it seeks to improve the ESG profile of its investments.

It’s part of a move to sustainable finance by the fund which follows a two-year review of its responsible investment position. With ‘sustainable finance’ referring to the consideration of the impact of investments on society and environment as well as thinking about the ESG risks on investments.

Rishab Sethi, the fund’s manager of external investments, describes how the last review in 2019 by Willis Towers Watson included a fulsome review of RI practices but recommended that the fund needed to think a bit deeper about what RI looked like over the decade and how the fund wanted to set itself up for that.

“Others may have leapfrogged us in terms of global best practice,” he lamented.

The most recent review initially looked at what other institutional investors were doing, what constituted best practice and how NZ Super’s existing activities and RI frameworks stacked up against that.

The upshot of that was a fairly significant pivot to ‘sustainable finance’.

“We always integrated ESG into investment decisions,” Sethi told Top1000funds.com in an interview. “We would keep doing that while fulfilling our financial purpose but we also wanted to think about the consequences of our decision on society and the environment as well. Not just the risks of it, but the consequences.”

The naval gazing also resulted in the NZ$56 billion fund being firm in its commitment to be part of the solution.

“In effect the system as a whole may be considered to be not very sustainable so what could we do to make the financial system as a whole more sustainable? Recognising we are a small fund at the end of the world,” Sethi says.

Choosing a benchmark

New Zealand Super took a big step back in 2016 to shift its policy benchmark to a climate benchmark (See New Zealand Super adds climate alpha) on the premise that climate risk was not suitably compensated.

“We wanted to rid the portfolio of the uncompensated risks,” Sethi says. “But there is more to sustainability than just climate, so we were doing a disservice by not having a bigger picture approach to sustainability.”

The result was twofold. A big picture approach to impact, which will result in a significant shift in the way the fund invests, and will take three to five years to rollout.

The second more near-term change was improving the ESG profile of investments.

“We asked can we continue to achieve our financial objectives but improve the ESG content of our portfolio and make the portfolio better or stronger?”

While the intention is to cover the entire portfolio, the most obvious starting point was the biggest piece of the portfolio, the NZ$25 billion passive equities portfolio.

“The hardest decision that we had to make was: do we change the benchmark or do we change the actual portfolio and leave the benchmark unchanged?” Sethi explains.

“The board chose to own it and to change the benchmark itself.”

The result was a move from a custom version of the MSCI All Country to the MSCI World Climate Paris Aligned index and the MSCI Emerging Markets Climate Paris Aligned index.

In the process about 7,000 securities were culled from the portfolio, reducing the passive equities to about 1,000 names.

Sethi , who took on the role of running the process and thinking around improving the ESG content of the equities portfolio, says one of the biggest lines of enquiry following these changes was whether the portfolio would be diversified enough.

“We had to gain comfort that we are diversified enough. The benchmarks serve as our reference portfolio which have certain principles including diversification, low cost, simple etc.”

As part of the process the fund reviewed 25 indexes across four different providers considering three broad themes.

“We looked at whether the new index matched up to the financial characteristics we are leaving behind. Also what do the sustainability characteristics look like and do we have a measurable improvement? Is it readily implementable, are there outstanding derivative contracts we can use, will banks give us quotes on these at low costs?” Sethi says, adding that 12 months ago the MSCI

Paris-aligned index that was selected was in a good position on all of these criteria.

One of the fund’s goals as part of the sustainable finance re-think is to change the system as a whole, and in order to do that it wants to be a leader and bring other investors along for the ride.

“We are hoping by choosing an off-the shelf product it could provid greater liquidity and help make it a market standard.”

Active is harder

While the passive equities significantly shrunk in the process, the actual equities portfolio has about 3,000 portfolio companies.
“We still have a bunch of active strategies – in value, low-volatility, quality and multi-strategy portfolios – which re-introduce some names to the portfolio. Some of those names may have been in the passive equities and so culled but now may survive in the active part of the portfolio.”
Sethi says the team is undertaking a piece of work to think about active strategies and what is needed to make that portfolio sustainable.
“Research on our active portfolio is under way, it is hard,” Sethi concedes. “When canvassing for value stocks, quality, momentum etc when combing the world for those, if you start restricting your world you won’t find the factor alpha you are looking for. You do need to start with a broad universe. I would be surprised if we are able to say in a year that an actual portfolio of 1,000 names is sufficient to represent passive and active.”
While Sethi says within the passive portfolio the main management decision is the choice of the benchmark, there is also a question of replication and for New Zealand Super that is normally done by third parties such as Northern Trust, State Street and UBS. It also uses derivatives in house.
All factor equities portfolios are managed externally by AQR, Northern Trust and Robeco and they are doing work on how to incorporate sustainability factors into the typical factor portfolios.
For example Sethi says AQR is doing research to introduce sustainability in a classic mean-variance optimisation framework.
“Given that model looks to maximise return for a given level of risk, it’s asking can you maximise returns and sustainability for that given level of risk, tackling it as a portfolio construction issue.”
The fund uses a lot of Bridgewater’s research on this topic as well.
“One of the questions we get is are you doing it this in the pursuit of alpha? For us the answer is categorically no. We don’t know if there is excess return to be gained from sustainability investments, but we believe it won’t detract from returns.”
From passive and then active equities the fund will look at its fixed income and private market portfolios.
“The overall aim is to be sustainable across the entire portfolio. That might not be the same thing as being Paris-aligned across the entire portfolio. For us that is not an objective but a solution that is helping us become more sustainable.”
The fund does have a net zero 2050 goal, so everything is evaluated in that context.

Norges Bank Investment Management, NBIM, investment manager for Norway’s NKK 12.72 trillion ($1.28 trillion) Government Pension Fund Global, has unveiled its latest investment strategy for the period 2023 to 2025 outlining a contrarian approach that will capitalise on periods of volatility plus boosted, internal technology expertise in its quest to become the best, large investment fund in the world.

“We have made a detailed plan which outlines how we intend to become the leading large investment fund in the world. We look forward to implementing this plan over the next three years”, said CEO Nicolai Tangen, speaking at the launch of the strategy.

Performance

NBIM will increasing use active management to exploit periods when it believes “variations in asset prices are excessive.” Such positions will apply across the fund’s equities, fixed income and real assets exposures. “Our active risk-taking will vary as market conditions change,” the report says.

NBIM manages assets close to a benchmark index comprising 70 per cent equities and 30 per cent fixed income.

However, the asset manager believes some investment opportunities merit diversifying beyond the reference index, particularly in unlisted assets. “All our investment processes have active elements,” it states. “This improves our ability to achieve the highest possible return and to be a responsible owner. Our long horizon enables us to act differently from other investors in difficult and illiquid markets. We believe that the most profitable investment opportunities arise in volatile markets.”

NBIM uses a range of investment strategies grouped into three main categories: market exposure, securities selection, and fund allocation applied across equity, fixed income, and real asset management.

Contrarianism will be a key part of strategy going forward. “We will seek to buy when others want to sell and sell when others want to buy,” says the report, adding NBIM will support portfolio managers who “dare to be contrarian and avoid herd behaviour.” The asset manager will also develop its investment simulator to analyse investment decisions, systematically learning from mistakes, and providing portfolio managers with feedback so that they can make better decisions in the future.

The largest element of the equity allocation is managed internally in the market exposure strategy. NBIM invests broadly in the companies in the benchmark but seeks to avoid mechanical benchmark replication with its high trading costs. NBIM also enhances return by following a diversified set of index refinement strategies, such as corporate action and capital market strategies. Going forward, the fund plans closer collaboration between traders and internal portfolio managers and says it plans to further automate trading processes.

Forensic analysis

In the fundamental strategy, NBIM pledges to expand “forensic accounting and behavioural analysis to reduce exposure to companies” it expects to underperform. It will take slightly larger stakes when it has reason to believe companies will outperform and will also use external managers in segments and markets where it believes they will enhance returns – or mitigate losses. NBIM will also pursue opportunities to invest in companies before they list, pre-IPO. “This would give us access to companies earlier in the company life cycle and potentially enhance returns.”

Fixed income

The main purposes of the fixed income portfolio is to dampen fund volatility, provide liquidity, and harvest risk premia in the bond market, says the report. As in equities, NBIM will invest in selected segments outside the 30 per cent allocation to diversify the portfolio and harvest risk premia. It will invest in corporate bonds based on company research, utilising its company knowledge across equities and fixed income.

Between 2016 and 2020 the relative performance for internal fixed-income management was 45 billion kroner ($5.1 billion), the most successful period for the allocation in the history of the fund. The allocation is run by a team of 25 portfolio managers, 10 analysts and 15 traders across different time zones invested across geographies, currencies, sectors and types of issuers.

Real estate

In real estate, NBIM will target an allocation of between 3–7 percent of the fund. The portfolio, which consists of listed and unlisted real estate, will actively exploit periods of disruption in the market. NBIM will target more development projects in the coming years and will adapt investments to meet increased demand for energy efficiency and flexibility in buildings. “To access the most attractive assets at acceptable risk, we will invest alongside best-in-class investment partners with a proven development track record,” it says.

Technology

Elsewhere the strategy outlines the investor’s pledge to develop tailored trading solutions. “We will buy adaptable and well-proven solutions externally when appropriate,” it says. “We will use our immense set of market and non-market data to support machine learning with the aim of strengthening our investment processes.”

Rather than use consultants, NBIM plans to hire and develop its own people, developing an internal, expert, technology culture in the coming years. “A close relationship between technology and the rest of the organisation ensures that technology developments are tailored to our needs,” it says.

ESG

NBIM integrates responsible investment and ownership at three levels. It works at the market level to elevate global standards for all companies; it works at the portfolio level to monitor ESG information and integrate this into the management of the fund and it works at the company level to promote good governance and sustainable business practices. “We will be a transparent and result-oriented owner. We will continue to develop our activities in collaboration with companies, peers, academia, and other stakeholders,” the report concludes.

 

 

CPP Investment’s current forecasts for contributions and compound investment earnings have it reaching the C$1 trillion mark by about 2030 (and $C3 trillion by 2050).

Chief investment strategist Geoff Rubin told the Investment Magazine Fiduciary Investors Symposium in Melbourne in November that the fund is already planning for that eventuality and actively designing the best structure and strategy to support it.

Rubin said CPP’s growth to date had been relatively straightforward, in the sense that it was endowed with C$200 billion and set out to build the investment capabilities and supporting functions it needed to transition those funds from passive management to active management.

But it’s now at the size, and expecting to achieve the kind of scale in the near future, that requires its various activities to be more joined-up, better coordinated and more focused.

Rubin said CPP has identified four clear areas where it can gain an edge over its competitors: being larger and more liquid, being smarter, being better connected, and being better run.

He said these four “sources of edge” would create a foundation for an organisation that has a simple set of strategic objectives encompassing a single purpose, clarity on its competitive edge, strong relative value capabilities and a set of cultural norms and expectations. Plus effective delegated accountabilities, optimised engagement with partners, methods for measuring success and ways to drive improvement, a set of common capabilities, and a highly optimised decision-making.

“This is some work we started to do to try to identify all possible sources of edge we as an organisation might draw upon,” Rubin said.

“This is not to say we [currently] possess these edges or possess them everywhere. I don’t think any institution possesses them all. But where can we start thinking about very clear demonstrable sources of edge that we can track, that we can measure, that we can push ourselves to perpetually sharpen – in particular, can [we] draw upon combinations that few other investors can?

“If we want to achieve that objective delivering the most return it’s very clear we need to be sharp and picking our spots as to where we apply these sources of edge.”

Rubin said a clear edge for CPP was to exploit its scale to gain an “incredible vantage point over global capital markets”.

“We have these capabilities, we’re invested everywhere, we see a huge swath of the investable capital markets across the world,” he said.

“That should allow us to identify where incremental risk-adjusted return prospects are greater or lesser, and then try to flow capital and other resources to those areas of greater interest, and away from others. No one in the world does that well, because it is really, really tricky, but we’re going to try to build out some of those systems.”

Rubin said CPP’s claim it could gain an edge by being smarter than the opposition was put forward tongue-in-cheek.

“To be honest, this is one that we kind of put up cheekily, because it certainly feels like a bunch of hubris to say you can be smarter than the competition in the space in which we compete,” he said.

“I don’t know that’s likely individually; maybe it’s likely at an organisational level. Maybe we can build smart organisations that draw connections among individuals and can invest in a way that really demonstrates unique insights. But gosh, this was really tough.”

Rubin said it was clear, however, that CPP could be better connected than many of its competitors.

“This is a good one for us,” he said. “We have, by virtue of developing our organisation in the way that we have, great connections with partners, with counterparts around the world. I think this could be a real source of edge advantage.”

Being better run than the competition presents a genuine challenge, Rubin said.

“Can we actually create a clearer, a better empowered, a better developed organisation that allows us to invest in ways that will deliver outsized returns relative to competitors in these markets in which we invest?” he said.

Rubin said the work CPP is currently undertaking is designed to help it identify how it can be “very, very clear and deliberate to ensure that everywhere we’re investing is being done so with some advantage”.

“This is effectively what we have determined we need to be as an organisation in order to effectively invest a trillion dollars and continue aspiring to deliver the most investment return we can, at our targeted level of risk for that very clear objective,” he said.