Recruiting talented people is critical for large institutional investors hoping to maintain their returns in a difficult climate – and for public pensions, that might mean hiring people who “find meaning in the mission of the organisation”, according to CalPERS CIO Joe Dear.
At the Milken Institute Global Conference in Los Angeles, Dear suggested that talent management was one of the key challenges currently facing CalPERS and other large investors. Since the likes of CalPERS typically find it hard to compete with private sector investors on salary, their social purpose – i.e. generating returns for the state's pensioners – might have to become a key selling point.
A similar sentiment was expressed by Xi-Qing Gao, president of the China Investment Corporation sovereign wealth fund – 90 percent of whose staff are now international. Contrary to the perception that the likes of CIC will easily outbid rival investors as it looks to build headcount, Gao said the fund was actually under pressure to keep salaries in line with other goverment-backed organisations in China. This made it harder to compete in the international market for talent, he said. Again, a sense of duty or patriotism might be a contributing factor in someone choosing to work for he fund, he added.
The panel also noted other significant challenges currently facing LPs.
Mark Wiseman, executive vice president of investments at the Canada Pension Plan Investment Board, highlighted the need for investors to start thinking about their portfolio in a different way. “It's amazing that people still talk about asset allocation,” Wiseman said; he argues that having one basket of (for example) bonds is misguided, since there is so much variation within that category. In Dear's eyes, the answer is to move to a more risk-based approach – a path that was pioneered by the big Canadian investors and is now being copied by the likes of CalPERS, he said.
A different approach to risk management could also be helpful, it was suggested. For instance, Wiseman said that in Europe, CPPIB has opted to spend more on infrastructure assets instead of buying sovereign bonds. Alexander Friedman, chief investment officer of UBS, argued that the best hedge against future inflation may be “to own companies that have great products, who can increase their prices”.
In terms of oppportunities in the current environment, Wiseman suggested US equities remained the best bet. “If you don't believe equities will outperform bonds in the long term, you don't believe in capital markets,” he insisted. Dear agreed, but added that “dislocation in the credit markets” represented a possible opportunity in the short term for investors who were willing and able to “step in strategically”.