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Institutional Shift: Long-term asset owners move to future-proof their portfolios (podcast)

ImpactAlpha, June 4 – The same focus on financial returns that long made social and environmental issues irrelevant to major institutional investors is now making them very relevant indeed.

“The disruption to your portfolio from climate, from technology, from population growth, from urbanization – that’s coming,” says Ashby Monk, executive director of Stanford’s Global Projects Center, which facilitates collaboration among pension, sovereign wealth and endowment funds and other major institutional asset owners.

Monk joins Equilibrium Capital’s Dave Chen and ImpactAlpha’s David Bank as part of a Returns on Investment podcast series on the “Institutional Shift.”

In the podcast, Monk peers into the thinking of asset owners such as OP Trust in Canada ($20 billion), New Zealand Super ($27 billion) and Japan’s Government Pension Investment Fund (~$2.4 trillion) about climate, inequality and other risks. Such institutional asset owners, both directly and through their managers, deploy vast flows of capital as long-term stewards for retirees, citizens, students and other stakeholders.

>>MORE: European supertankers of finance chart a course to a different future

“Long-term” is the operative phrase.

“I don’t view ESG (for environmental, social and governance factors) as anything other than a long-term risk management tool,” Monk says. “If I’m a $2.4 trillion public pension plan, I’m assuming that much of these assets are going to be around for many decades, if not centuries. So you’re taking a long-term view, and ESG is a great way of doing that.”

Helping move the debate is what Ashby calls the “herd mentality” of institutional investors, “I like that term impact alpha,” he said. “Anywhere investors see alpha, there’s going to be money chasing it.” He cites the example of Temesek, the $200 billion sovereign wealth fund of Singapore, which has delivered high-teens returns over four decades. “If you are using an impact lens to do that, so much the better — you can have some positive effects and externalities for the broader world.”

>>MORE: Institutional investors come for the risk reduction, stay for the impact 

The immediate wedge, Monk says, is the growing realization among asset owners of the high fees and costs associated with conventional approaches to private-equity and hedge-fund investing. “All of a sudden, we get these pension funds asking a very important question: Is there another way? It’s in that moment that we can move the supertankers.”

“The beauty of focusing on the asset-owner community is that if you can even move them even one or two degrees off their north star, you’re going to move trillions of dollars.”


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