Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
A D-notice on challenging the ESG trend?
(Pictured: Jack Gray)
Jack Gray, an executive director of Brookvine and adjunct professor at the University of Technology Sydney, believes the investment world has become too politically correct, especially in Australia. He spoke at the FEAL conference on the subject but believes there should be a wider discussion.
He said last week: “There is a D-notice* in Australia on anything critical of ESG/UNPRI/ etc. Here are six instances:
“(1) I wrote a piece critical of the movement, sent it to Barrie Dunstan (former columnist for the Australian Financial Review) who asked if he could write an article on it. Two days later he rang to say he couldn’t do it because it would be career-limiting. This was a few months before he retired.
“(2) I was asked by groups in the Netherlands, UK, Canada and the US to speak on the topic but never in Australia.
“(3) I was asked by the chair of a large US fund to talk to the board about it. The same story: ‘Sorry I’ll have to withdraw the invitation’.
“(4) At FEAL this month I was offered a ’10 minute Soapbox’ opportunity to speak, which by design somewhat trivialises the issue. I spoke about the censorship and how the movement is now highly PC (and that it doesn’t add net value). No fewer than seven senior people came up to me afterwards saying things like ‘I’m glad you said it because I can’t’. They can, but lack the courage – which it shouldn’t take. (See the recommended trade in http://cuffelinks.com.au/the-c-word-s-an-irregular-irritating-series-of-dictionary-narratives/)
“(5) Before the conference, Fiona Reynolds (former head of AIST and now chief executive of the UNPRI in London) sent Michael Baldwin (chief executive of FEAL) a text complaining about what I was going to say.
“(6) Many others I hear repeatedly but can’t confirm.”
Gray wrote a letter to the editor of an international investment newsletter, in which he said: “How about showing some courage and writing about the veil that prevents meaningful open discussion around the issue?… Here’s a chance.”
Gray said: “Joe Dear (CIO) at CalPERS, a fund heavily involved in feelin’ good (as befits California), was reported in the Wall Street Journal as saying at a March ECO conference that CalPERS’ $900m clean energy/technology fund started in 2007 has returned minus 9.7 per cent p.a. to date. That’s no argument against the investment but rather an argument against the misguided and naive beliefs most of the movement has about investing.
“Joe was quoted as saying: ‘We’re all familiar with the J-curve in private equity, well clean-tech investing has got an L-curve for ‘lose.’ Our experience is that this has been a noble way to lose money. And we’re not here to lose money. We have dialed back.’ He did say that CalPERS may look again at clean-tech investing if the profits and returns are there, ‘but if it takes 12 years to get the money out, the IRR is not going to very good, even if the investment is reasonably successful’.”
*D-notices are the conventions accepted by editors around the world to not publish certain information, usually but not exclusively in wartime, because it may be harmful to the society.
