We met with the risk and asset allocation head at A Very Large Investor today.
Here were some of their thoughts
- approx 100 bn plan
- 75 year time frame, partially funded, not like a typical gov or private plan
- Currently no net liabilities are due – do not have payouts for another 11 years
- Unusual set up – A Crown Corporation – they can set their own comp/incentives – but have public mission
- (I would posit the above is intrinsically unstable e.g. FNM and FRE)
- 40 people in their Risk/Asset Allocation group
- Economists
- Investment Researchers
- Quants
- Mostly CFAs but the longer term plan is to shift toward PhDs.
- They view assets with equity type risks as Equity, and adjust for beta
- Implication – if they buy 1mm of private equity, it gets a beta forecast (hypothetically 1.3)
- Then to fund that PE purchase they sell 1.3mm of public equity and buy .3mm of fixed income
- This way all investments are considered in respect with a public market risk/return profile
- Real estate for example has typically 3 buckets: .3 beta, .7 beta, 1.1 beta
- Discussions over forecast beta between investing and risk group: risk has final say
- They use Riskmetric somewhat, primarily to get to 1yr VaR numbers
- It seems they basically break the world down into Equity and Govt risks, with even credit being a hybrid of those two
- Somewhat different than us, probably better than our ‘Label Based Investing’ system, but different governance, org structure/system, and participation.
- They do direct investing / coinvesting as well
- No fixed allegiance to a set min or max amount of private asset classes
