Institutional Investors: Focusing on Long-Term Value in a Short-Term World

Market Environment and Strategic Posture

• Global Macroeconomic Conditions: Global GDP grew 3.7% in 2017 with anticipated growth of 3.9% to 4% for the current year, though developed markets face tightening interest rate cycles initiated by the US, with Australia and the ECB expected to follow.
• Valuation Stance: Panelists generally agree that global equities are fairly valued or "priced to perfection," with no compelling cheap assets identified, leading to a defensive posture across most portfolios.
• CalSTRS Strategy ($225B): Maintains exposure close to target allocations while leaning defensive due to global risks; acknowledges the "Goldilocks" climate but refuses to time the market given a 30-year horizon.
• CalSTRS Private Markets: Maintains a "steady-state" approach to illiquids (approx. one-third of the portfolio) due to the 103-year age of the plan and the difficulty of timing vintage years in private equity and real estate.
• NYS Common Retirement Fund ($209B): Shifts real estate strategy from opportunistic to "core and core-plus" to prioritize diversification over private-equity-style returns; upgrades fixed income credit quality (minimum triple B) and shortens duration.
• Wellcome Trust ($32B): Maintains virtually zero exposure to fixed income, viewing it as mispriced; relies on 100-year debt issued at a 2.5% fixed coupon to fund operations, signaling a perpetual investment horizon.
• Wellcome Trust Spending Policy: Transitioned from an asset-size-dependent spending model to a "sustainable dividend model" to navigate an environment of lower expected returns and higher volatility.
• Afore 21 ($40B): Achieved the maximum 20% limit for international investments (split between US, Europe, and Asia) and aims to allocate an additional $1B to real assets (private equity, real estate) by Q3, focusing on Mexico's oil and gas sector.
• CBUS Industry Superannuation ($43B): Leverages industry-specific knowledge (construction/building) to invest in real assets that create local employment and ensure a sustainable economic environment for 75,000 members.

Activism, Governance, and the Divestment Debate

• Consensus Against Divestment: Panelists (Chris Ailman, Vicki Fuller, Nick Mokes, David Adkin) argue that divestment is ineffective for driving social change, citing the five-year lag between divestment and the end of apartheid, and the inability of selling shares to influence company behavior.
• Engagement Strategy: The preferred method for influencing corporate behavior is direct, multi-level engagement with management and boards regarding long-term sustainability (e.g., board diversity, supply chain risks, chemical safety).
• Afore 21 Engagement: Prioritizes transparency in real assets, requiring investees to demonstrate environmental and social risk mitigation, particularly regarding renewable energy projects in Mexico.
• Social Issues Complexity: The "S" (Social) component of ESG is identified as the most difficult to standardize due to varying constituent values; Vicki Fuller notes the challenge of balancing fiduciary returns with social preferences like gun violence or prison reform.
• CalSTRS Member Education: Utilizes analogies (comparing stock selling to moving districts) to educate teachers that holding stock allows for active influence on curriculum and governance, whereas divestment removes the shareholder voice.
• CBUS "Ethical Options" Findings: Member research indicated that blue-collar workers prefer the fund to integrate ESG as a fiduciary risk assessment rather than offering separate "ethical" investment vehicles, trusting the fund's expertise.
• Wellcome Trust Fossil Fuel Position: Defends exposure to fossil fuels as necessary for global economic development and health outcomes in emerging markets (e.g., India, sub-Saharan Africa), rejecting total divestment to maintain leverage for transition solutions.
• Integrated Reporting: CBUS and other panelists advocate for "integrated reporting" to combine financial and sustainability data, focusing on value creation across six capitals rather than quarterly performance metrics.

Technology and Innovation

• Technological Disruption: Panelists acknowledge the difficulty of predicting specific winners in high-disruption sectors (e.g., autonomous vehicles, streaming media) but emphasize the necessity of allocating capital to intellectual capital over physical assets.
• CalSTRS Private Tech: Allocates private market resources to technology managers who demonstrate premium returns, using these relationships to gain visibility into broader tech trends.
• Wellcome Trust Biotech: Identifies genetics and genomics as a primary tailwind, with a significant investment in personalized medicine that has transitioned from mixed-motive charitable funding to a core return-seeking position.
• Afore 21 Tech Adoption: Expanding into venture capital (currently three funds) by partnering with international managers to bring expertise in autonomous driving and innovation to the Mexican market.
• Healthcare Personalization: A consensus exists that the future of healthcare lies in the individualization of treatment via genetic data, creating investment opportunities in early-stage biomedical research.

Long-Term Trends and Future Outlook

• Food Security and Demographics: Chris Ailman identifies global population growth (specifically in India) and the unsustainable resource intensity of meat production as critical long-term trends requiring investment in food distribution innovation.
• Sustainable Development Goals (SDGs): David Adkin positions the UN's 17 SDGs as the primary roadmap for long-term capital allocation, identifying six specific goals relevant to the construction and building industry.
• Workforce Disruption: Vicki Fuller highlights the risk of workers remaining ill-prepared for globalization and technological disruption, urging investors to consider the societal impact on communities and executives.
• Waste Management: Nick Mokes lists waste management as a specific long-term trend likely to drive value, alongside personalized healthcare.
• Regulatory and Policy Risks: Afore 21 notes that Mexico faces political uncertainty and an inverse yield spread versus the US, creating a paradox where high-risk government debt yields are difficult to beat, necessitating diversification into private assets.
• Fixed Income Outlook: Panelists anticipate pressure on fixed income and equities as central banks unwind balance sheets, necessitating a focus on underlying cash flow generation rather than multiple expansion.