Technology and its potential to disrupt and impact investments is making its way up the agenda for institutional investors.
Sources said both the risks and opportunities afforded by technological advances are firmly in their sights, with some examining the impact across their portfolios.
Stanford University researcher Ashby Monk said he has heard a lot on the topic lately, with three angles to it. The first has institutional investors focusing on whether "technology is going to blow up the portfolio of assets we currently hold," Mr. Monk said. One example he cited were investments in parking garages in a world of driverless cars. "That is a big focus. If you're in a public equities team (at a pension fund or within any active management process), it's probably an area you're interested in unraveling as kind of a threat to the core assets in your portfolio.
"A lot of organizations (such as sovereign wealth funds and pension funds) are arriving in Silicon Valley, not (looking) for the next great startup, but to try to get a sense of the risk," he said.
Mr. Monk, who is the executive director of Stanford's Global Projects Center, Palo Alto, Calif., said the second angle involves investors considering "how to take this disruption and participate in it, to allow (investors) to get some of this new value."
He said bad experiences in the past with venture capital — a traditional way of accessing disruptive investments — mean institutional investors are "really scratching their heads and thinking, 'how do we do this?'"
Options include seeding new managers or direct investment, he said. "Nobody has really cracked it yet in terms of identifying the next great model."
The third element is institutional investors' own investment processes, and considering how technology might enable them to remove the cost of an external manager.
"All three have increased in their relevance in just the last six months," Mr. Monk added.
The issue of technology's potential to disrupt portfolios is under consideration by a number of pension fund executives.
"We're looking at it from a risk point of view — we've done work in the climate area, seeking better disclosure on climate risk, but we'll be looking very closely at how companies we are seeking to invest in are dealing with (disruption risks)," said Hugh O'Reilly, president and CEO at OPTrust, which manages the C$19 billion ($15 billion) Ontario Public Service Employees Union Pension Plan, Toronto. Plan executives want to know whether these companies are conscious of the risks and preparing for them, and want to see the innovative culture within companies. "We have to be thinking about where we are, where we're going, and be thoughtful and responsible around it," Mr. O'Reilly said.