Institutional investors at the Milken Institute Global Conference in Beverly Hills, Calif., were investigating new ways of investing that would provide risk-adjusted returns.
Everything from investing directly in all types of alternative asset classes — such as private equity, natural resources and real estate — to investing in sports teams was discussed late last month.
Also, investors on a panel titled, “The view from institutional investors: Where will returns come from” said one of the things that keeps them up at night is their fixed-income portfolio.
The five pension funds in the $150 billion New York City Retirement Systems have a $45 billion fixed-income portfolio, half invested in core, said Seema Hingorani, chief investment officer for the systems' Bureau of Asset Management. Plan officials are looking to diversify the portfolio by expanding into alternative fixed income and European debt. Officials also are interested in investing in real estate debt as well as lending and student loans, Ms. Hingorani said.
Jerry Albright, deputy CIO for the $126 billion Teacher Retirement System of Texas, Austin, said stable value is a concern and the pension fund is interested in boosting its exposure to energy. “It's … in our backyard,” Mr. Albright said.
Several of the panelists are in the midst of making big changes to their total portfolios.
Michael Sabia, president and CEO of the C$250 billion (US$227 billion) Caisse de Depot et Placement du Quebec, Montreal, said that 85% to 90% of the portfolio is invested internally.
Officials at Caisse — the manager for provincial, municipal and other pension funds in Quebec as well as other provincial entities — made substantial changes recently to their public equities portfolio, focusing C$50 billion on a pure absolute-return strategy, without regard to index.
“If the (public equity) team wants to invest in a stock, it will buy the stock regardless if it is in an index,” Mr. Sabia said. “And we are prepared to take large, concentrated positions.”
In alternative investment areas, Caisse continues to make direct investments in private equity, including investing alongside other institutional investors at home such as the C$201.5 billion Canada Pension Plan, Ottawa, and around the world, Mr. Sabia said. To that end, the pension fund is building a research team with operational expertise.
Instead of focusing on how a deal is structured, officials are hiring “people who understand the operations of those businesses,” Mr. Sabia said. “Operations are a source of value over financial engineering.”
In addition, Caisse de Depot officials are working with select private equity firms to get access to deals the firms see but are not interested in because the investments do not fit their return requirements or private equity fund time horizon, Mr. Sabia said.
Li Keping, vice chairman, president and CIO of the $600 billion China Investment Corp., Beijing, said half of the sovereign wealth fund's $200 billion international portfolio is allocated to “long-term assets,” including private equity, real estate, infrastructure, agriculture and private deals in private companies. The rest is allocated to public investments ,including equities, fixed income and absolute return.
Between 60% and 70% of the international portfolio is externally managed. The CIC is looking to co-invest with managers that can lend expertise to transactions that CIC staff lacks, Mr. Li said.