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The best investor calls from the abyss that was 2016

Modern Investors we interviewed across the globe throughout that most fateful of years reveal its redeeming features.

January 2016

Institution: Ilmarinen (mutual pension insurance company)
CIO: Mikko Mursula
Size: €36 billion
Location: Helsinki, Finland

RAISING THE ROOF

We kicked off the year with Mikko Mursula who heads up an 80-strong team at Finnish mutual pension insurance company Illmarinen.

He told us how he was on a mission to find alternatives and be more active when it comes to tactical asset allocation.

Real estate was Mursula’s chosen modus operandi as he told us of the global portfolio transformation he had planned.

‘The scheme’s objective is to increase direct Finnish real estate holdings by €150 million and global property investments by €200 million every year over the next five years.’

Read the full story here.

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February 2016

Institution: Environment Agency Pension Fund (EAPF)
CIO: Mark Mansley
Size: £2.5 billion
Location: Bristol, UK

ANDROID ANGST

In the afterglow of COP 21 we spoke to one of the UK’s most committed sustainable investors; Mark Mansley, CIO of the Environment Agency Pension Fund.

He and his team were however already one step ahead, announcing its targets for 2020 a month before the momentous climate deal was struck.

The targets included reducing coal exposure in the portfolio by 90% and oil and gas exposure by 50%, as well as a 15% investment in low-carbon, energy efficient opportunities. Beyond climate change, Mansley’s major concern was the impact of technology on global growth, and its potential to widen the gap between the haves and the have nots.

He told us: ‘Henry Ford thought it was really important to pay your workers enough to allow them to buy his cars, in order to create a virtuous cycle. If his workers could afford his cars, he thought, he would make more money.’

‘If the age of robotics means workers are not working anymore, who is going to buy those cars? As well as low growth, other consequences of this scenario would be continuing very low interest rates and rising social unrest.’

Read the full story here.

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March 2016

Institution: ELO (pension insurer)
CIO: Hanna Hiidenpalo
Fund size: €20.5 billion
Location: Helsinki, Finland

HARNESSING BIG DATA

At the end of Q3 we spoke to Hanna Hiidenpalo, head of Finland’s newly formed mutual pension insurance company ELO.

She was on a mission to shake things up at the scheme, challenging the existing pension fund model to give its members access to a broader range of investments.

Considering ELO insures a third of all Finnish companies and 40% of self-employed Finns, that was a big to-do list.

She told us: ‘We need to be more flexible than in the past. That means smaller positions in the portfolio and a very high degree of diversification.’

Achieving this meant looking more closely at the cost effectiveness and transparency of the portfolio.

‘You need to use your own capabilities to fully utilize and to improve systems, work with big data and build up your own models.’

And it’s a move that played into the hands of hedge funds.

‘We’re aware of the cost and transparency issues of hedge fund strategies, but we like the asset class. We have our own dedicated strategy and also select funds which have delivered good returns in the long run.’

Read the full story here.

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April 2016

Institution: NN Group (pension fund for insurance giant)
CIO: Jelle van der Giessen
Size: €110-billion portfolio
Location: The Hague, Netherlands

ESTABLISHMENT TAKES A BEATING

In spring boxing enthusiast Jelle van der Giessen told us how he maintained balance in a world that was becoming increasingly unstable.

On the big macro event of the year – the US election - the CIO of Dutch insurance giant NN Group pulled no punches.

With six months to go until the result was announced, he warned on the momentum Donald Trump was gathering saying: ‘Voters are increasingly attracted by voices which sound different from those of established politicians. But on the other hand, I don’t think populism is good for the long-term prospects of a country.’

Predicting some uncertainty to come, he was sticking by assets where he would be paid for locking up his capital.

‘You need to be careful with high yield but it is still attractive. We think corporate loans are a good addition and often offer better relative value due to the illiquidity premium and diversification.’

Read the full story here.

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May 2016

Institution: Employees Retirement System of Texas (ERS)
CIO: Tom Tull
Size: $25 billion (€22 billion)
Location: Austin, USA

TOUGH NEGOTIATOR

In May we met with another straight talker as Vietnam veteran turned pension fund chief Tom Tull, told us how he played hard ball on the tricky business of fee negotiation.

Investing on behalf of the state employees of Texas, he managed to make savings of over $63 million (€60 million) across the fund’s private equity, hedge fund and private real estate exposure.

Tull revealed his strategy was most successful with mid-sized asset gatherers, who were more willing to negotiate not just on management fees, but also on the carry with a hurdle rate.

‘The usual fees in hedge funds are “two and 20”: 2% management fee, 20% carry. But I can’t think of the last two and 20 we did. We tend to be nearer to 1.1-1.5 depending on the asset class.’

Small asset managers were also on his radar as they helped to enhance the fund’s overall risk-adjusted return, at reasonable costs.

‘Many emerging managers outperform their larger peers because they look at things differently. Lots of them are thought leaders; they have market niches that they get more actively involved in.’

Among the firms the pension scheme has invested in are hedge fund Stone Lion Capital Partners, private equity company GCM Grosvenor and private real estate firm Oak Street Real Estate Capital.

Read the full story here.

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June 2016

Institution: AP3
CIO: Marten Lindeborg
Fund size: €33 billion
Location: Stockholm, Sweden

GREEN BOND BONANZA

In June daylight stretches for over 20 hours in Sweden. This may account for why when we caught up with AP3 chief, Marten Lineborg, he was brimming with positivity.

The CIO of the €33 billion pension fund was on the hunt for talented people and contrarian ideas, these, he said, were the key to thriving in today’s complex investment environment.

The boldest of these ideas Lindeborg revealed was in green bonds. At the end of 2015, AP3 announced it would triple its holdings in just three years, with exposure rising from €486 million to €1.6 billion by 2018.

It would also slash the carbon footprint of its listed equities and credit by half compared with 2014, and double its strategic sustainability investments, such as water treatment, from €1.09 billion to €2.1 billion by the end of 2018.

Read the full story here.

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September 2016

Institution: Fonds de Réserve pour les Retraites
CIO: Salwa Boussoukaya-Nasr
Fund size: €36.3 billion
Location: Paris, France

INDEXING INGENUITY

When we caught up with the CIO of France’s €36.3 billion reserve fund Fonds de Réserve pour les Retraites (FFR), she was consumed by finding an alternative ESG benchmark more powerful than a simple ‘exclude and optimise’ index.

Salwa Boussoukaya-Nasr told us: ‘We didn't want to do simple optimisation, because it's very crude: you take out the worst companies and optimise, which results in a low-carbon portfolio but the influence of it is not very big.’

That’s why she joined forces with Sweden’s €33 billion AP4, and French asset manager Amundi. Together, the three institutions asked the established index provider MSCI to create a low-carbon gauge.

FRR initially seeded €1 billion to track MSCI Global Low Carbon Leaders Indexes. By the time of our interview it had grown to €1.3 billion.

Read the full story here.

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October 2016

Institution: Local Pensions Partnership Investments (LPPI)
CIO: Sally Bridgeland
Fund size: £12 billion (€14 billion)
Location: London, UK

ENERGETIC COLLABORATOR

In autumn we caught up with Sally Bridgeland, one the UK’s most experienced investors. With the redesign of the £19 billion (€22 billion) BP Pension fund on her CV, we were all ears on her next challenge; running a viable investment strategy for three amalgamated local authority investment pools.

In her new capacity as Local Pensions Partnership Investments (LPPI) chair, Bridgeland told us of her ambition for the fund which saw the Berkshire Pension Fund, the London Pensions Fund Authority (LPFA), and the Lancashire County Pension Fund join forces.

‘Let's be a not-for-profit fiduciary manager for people that we know, people like us,’ she proclaimed.

‘Reducing deficits, that's what we want to do - we can do that by reducing costs, by getting better returns, or by being tight on liability management.’

She also told us one of the biggest challenges - not only for the LPP but for all UK pools - was getting the timing right for redesigning illiquid portfolios.

This is especially important because one of the main goals in creating the pools was to allow them to invest with as few constraints as possible in real assets.

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December 2016

Institution: Ithmar Capital
CIO: Tarik Senhaji
Fund size: $1.5 billion
Country: Rabat, Morocco

FIT FOR A KING

As the year drew to a close we spoke to Morocco’s sovereign development fund chief Tarik Senhaji.

Fresh from his country’s hosting of COP 22, the former derivatives trader argued that while the developed world was resting on its laurels, energetic, emerging rivals had been busy rewriting the rules on how public institutions can invest.

‘“You buy my bonds and I’ll buy your bonds.” It’s a good way to put a nice picture on your balance sheet, but are you really creating value?’

Senhaji gave us the inside story on how and why Ithmar Capital was established and how with the backing of the Moroccan government and its reformist Monarch King Mohammed VI, it partnered with the World Bank to launch the first pan-African green investment fund.

The Green Growth Infrastructure Facility for Africa (GGIF Africa) he told us, was one of many practical steps needed to turn the promises made at COP 21 into reality.

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