In investing the assets of the total fund, management is guided by a set of investment beliefs:
- Pension Management Organization: Our investment objectives are driven by our liabilities. Our success is determined by how well we meet our pension promise to our plan members. We must earn sufficient real returns over the long-term to ensure the plan remains fully funded, while striving to keep the benefit level and contribution rate stable.
- Alignment: We work to ensure that investment staff, external managers and vehicles, as well as investee companies, are appropriately aligned with the long-term interests of our beneficiaries.
- Risk Factor Diversification: Diversification is best achieved through a risk factor approach to portfolio construction at the Total Fund level. Risk is a scarce resource; it must be allocated purposefully and efficiently for us to successfully meet our Plan objectives.
- Market Efficiency/Excess Returns: Market inefficiencies provide the potential to generate excess returns (“alpha”). Our success in capturing these excess returns is enhanced by having skilled professionals, working in a well governed and collaborative work environment.
- Risk Management: Taking risk is necessary to earn the returns required to meet our pension obligations. In so doing, we accept we will experience periodic investment losses. We encourage and reward risk-taking and innovation and understand that not every decision will result in success.
- Mean Reversion: Market prices are subject to bouts of fear and greed. Current valuation levels will influence future investment returns and the risk of loss. Over the long run, risk premiums are mean reverting and will reflect the riskiness of the asset and the underlying fundamentals of the economy. We can exploit this mean reversion behavior through sound fundamental research and by leveraging our liquidity and long-term time horizon.
- Governance/ESG: Environmental, social and governance factors can affect investment risk, return and our reputation. Understanding and considering the significance of these factors is part of the investment process. Good governance is good business and contributes to value creation and sustainability.
- Dynamic Environment/Innovation: The world is ever changing, as is the investment landscape. The market is highly competitive and will not wait for us. We must be ready to act dynamically and decisively, using our talent and capabilities to capture opportunities and mitigate risks. We must embrace innovation and new ways of doing things while ensuring we have the appropriate processes and controls in place to manage our risks.
- Complexity: We will accept complexity, but only when it is required for the achievement of our investment objectives. Complexity adds to costs and risks and these must be carefully weighed against the benefits.
- Costs: We view investing as a business. As such, we assess our results net of all our costs. Costs should be managed and linked to our investment objectives.