McKinsey surveyed 27 large, geographically diverse pensions and sovereign wealth funds at the executive level, which in total amounted to US$ 7.4 trillion in assets. McKinsey’s survey and interviews came to the conclusion that more public institutional investors will take on a different approach to asset allocation. The old model of solely relying on backward-looking data is no longer cutting it. As Sacha Ghai, a Senior Partner at McKinsey puts it, “portfolio construction is the priority,” when it comes to returns. Ghai leads the consulting firm’s global institutional investor practice.
Ghai also talked about how asset owners are starting to place more emphasis on asset allocation by building up their internal resources. From a portfolio construction point of view, for example in infrastructure, Ghai noted that asset owners, “are looking at trends in regulations, while factoring in economic growth and exogenous factors that can shock the system.” Thus, more large pensions are developing their own house views on where markets are heading versus purely relying on advisor or consultant forecasts.
Alpha is much harder to find for wealth funds and pensions, and the collapse of the risk premia has forced asset owners to take on incremental risk. More owners are allocating toward illiquid strategies, and according to McKinsey’s survey, 75% of the respondents are likely and very likely to go into investment areas that are currently not in their portfolio or strategy, such as direct lending and reinsurance, in the next five years.
How Can Mid-Tier Asset Owners Generate Big Returns?
77% of the investors surveyed either likely or very likely plan to build direct or lead investing capabilities in the next five years. Often, the smaller wealth funds and pensions, averaging US$ 50 billion in assets, are in constant competition with larger asset owners for access to talent, top-tier funds, co-investments and direct investments. Ghai believes that mid-sized pensions and wealth funds can have teams as great as the larger asset owners. Ghai stated, “There is no reason a US$ 200 billion fund should be able to attract better talent than a US$ 75 billion fund. It comes down to ambition.”
Ghai says that asset owners who want greater access to deals, to be viewed as reliable partners and generate more opportunities must build internal talent and create a high-performance culture similar to what leading firms in other sectors do, for example Apple in high-tech and GE in industrials. Asset owners could enhance reputation by opening foreign offices, showing capital commitments to markets, building networks by attending conferences and partnering with local players. Wealth funds and pensions that recruit excellent people have the ability to tap into a massive deal network, which makes a significant difference. The McKinsey survey reinforces what the SWFI has been reporting for the past few quarters: More wealth funds and pensions will follow the direct investing trend, rethink asset allocation to make it more forward-looking, while needing to adjust internal resources for it.
Here is a link to the McKinsey report.
Norway GPFG Excludes More Companies, 2 For Coal and 1 for Working Conditions in Vietnam
Norway Government Pension Fund Global will not be able to invest in three more companies as decided by Norges Bank. In a statement by Norges Bank Investment Management (NBIM), Texwinca Holdings Co, Evergy Inc, and Washington H. Soul Pattinson & Co Ltd., were removed from the sovereign wealth fund’s portfolio.
Texwinca Holdings Co is a Hong Kong-based investment holding company that is engaged in activities such as knitted fabric and apparel businesses. Norges Bank excluded this firm over its view on an unacceptable risk that the company is responsible for serious or systematic human rights violations. Texwinca owns 50% of the shares in Megawell Industrial Ltd, making it that company’s largest shareholder. Megawell owns the garment factories Hugo Knit and Kollan in Vietnam as wholly owned subsidiaries. Texwinca claims that it does not have a controlling influence over Megawell and is not responsible for the working conditions at Megawell’s factories in Vietnam, according to a finding by Norway GPFG’s Council on Ethics.
Evergy is an investor owned electric utility headquartered in Kansas City, Missouri, United States. Evergy is the largest electric company in Kansas. Norges Bank excluded this firm based on an assessment of the product-based coal criterion.
Washington H. Soul Pattinson and Company Limited is an Australian conglomerate founded by businessman Lewy Pattinson. Norges Bank excluded this firm based on an assessment of the product-based coal criterion.
Petrobras Draws Interest for NE Pipeline Network
Petróleo Brasileiro S.A. (Petrobras) received a number of bids for its natural gas pipeline network in the country’s northeast. The asking price is up to US$ 6 billion. Banco Santander SA is advising Petrobras on the deal.
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Strategic Development: Angola Sovereign Wealth Fund Building Hospitality School
Switzerland is known for its world-renowned hospitality schools, attracting international students. The FSDEA is collaborating on the school development with Lausanne Hospitality Consulting (LHC), the Swiss knowledge development and management advisory company and the consulting and executive education division of Ecole hôtelière de Lausanne (EHL). By partnering with Lausanne Hospitality Consulting, the FSDEA wants to ensure the school is EHL accredited.
In a press release, José Filomeno dos Santos, Chairman of the Board of Directors, FSDEA, said, “As we continue to witness exponential economic growth there is a growing demand for trained professionals in the hotel industry. The main objective of the Academy is to provide leading training in this sector across our continent. EHL is one of the best known hospitality schools globally, and we are therefore very pleased that youth from Angola and around the continent will be able to benefit from their renowned expertise and know-how.”
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