Investment objectives

We aim for the best risk-adjusted returns needed to achieve and maintain fully funded status.

Sources of return

• We believe that asset allocation is the single largest driver of our performance and risk profile. Our asset allocation is updated at defined intervals through a rigorous process to reflect changing market conditions and long-term views and is subject to a disciplined rebalancing process to ensure strong returns.
• Manager selection is a key determinant of returns on actively managed assets. We monitor our managers on an ongoing basis to ensure they remain consistent with the strategy they promise and the returns we expect.
• We take risk to generate stronger long-term performance and only do so where we are compensated by expected return.
• We consider environmental, social and governance factors in our investment process because they can influence both risk and return.

We consider environmental, social and governance factors in our investment process because they can influence both risk and return.

Risk management

• We seek to diversify our investments to manage risk. We diversify among asset classes, sectors, geographies, time horizons, and other factors.
• We believe that risk should be managed first at the Fund level and then within each asset class to reflect their differing risk/return profiles.
• We believe that risk is multi-dimensional and cannot be reduced to a single measure.

Organization

• We believe achieving strong returns over time requires attracting, developing, and retaining dedicated, excellent people.
• We believe in empowering individuals and holding them accountable for their contribution to the Fund’s results.

Competitive Advantages

We believe that our long-time horizon should allow us to capture a premium by increasing the illiquidity and duration of some of our investments, and that our scale should enable us to manage assets in-house at lower cost, negotiate for lower fees, and build strategic relationships with the best external managers.

Cost management

• We believe that developing internal investment capabilities can help lower costs. We build in-house capabilities where they will improve our net returns.
• We believe in assessing managers mainly on the basis of net returns, not on the fees they charge.

Market beliefs

• We believe that in highly efficient markets, we should gain exposure through low-cost, passive strategies. In less efficient markets, we consider active strategies where:
  • We understand the drivers of the inefficiency
  • We believe the inefficiency is likely to persist
  • We are able to identify managers capable of consistently exploiting the inefficiency
• We believe that, as a fund, tactical trading on short-term market movements will likely lead to long-term under-performance. We also believe, however, that we should retain flexibility to react to new information and alter the Fund’s portfolios within asset classes where we have a clear thesis on how long-term risk and return prospects will develop.
• In general, we believe underlying market factors revert to their long-run means over time and that this is reflected in the mean reversion of asset class risk premia over the long-run.