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.
Impact investing discussion at SuperRatings conference
(Pictured: Graham Long)
Impact investing, which has become well established among the big US public sector funds, particularly in California, and is just starting to gain traction in Australia through state government social benefit bonds, will be discussed at the SuperRatings Day of Confrontation Conference in Melbourne on October 15.
Michael Trail, the founder and chief executive of Social Ventures Australia, and Graham Long, the pastor and general manager of The Wayside Chapel in Sydney’s Kings Cross, aim to challenge the superannuation industry to find better ways to utilize their pool of money to meet the social challenges Australia faces.
Jeff Bresnahan, SuperRatings executive chair, said Long, an entertaining speaker on the tough subject of Sydney’s homeless, would address the emotional challenges and Trail, a former executive director of Macquarie Bank, would address possible solutions.
“Really, we are talking about impact investing,” Bresnahan said.
According to Ben Thornley, a New Zealander and former journalist in Australia currently working in San Francisco on CalPERS’ impact investing program, there are ways to package up socially worthwhile programs, such as slum redevelopments, into worthwhile investments for big pension funds.
In his consulting work, he is usually advised of a project and then speaks to all the appropriate government agencies to ascertain where their funding may be used before looking at commercial funding and development. The aim is always for a commercially acceptable return to go hand-in-hand with the social good.
In Australia, at least two super funds have already ventured down this path:
- Christian Super has an established program for impact investing, with strong returns, and have useful insights into how you manage, monitor, and report to members on impact investments.
- NGS Super has allocated to a second social benefit bond, the Newpin SBB.
Social benefit bonds are financial instruments in which private investors provide capital to service providers for improved social outcomes. If delivered, the improved outcomes provide cost savings to the government, which repays the investor with interest. The NSW Government launched the first Australian social benefit bond in 2011.
