How a Growing CAD $20 Billion Firm Gained New Insight into Pension Risk
A look at how Vestcor scaled oversight with MSCI analytics.
OverviewScaling capabilities to match rapid growth
Vestcor Inc.,1 providing global investment management and pension administrative services to public sector pension plans, sought to expand its capabilities after its assets under management nearly quadrupled over a 20-year period.2
As Vestcor grew, it evolved into a more sophisticated, globally focused organization — with increased allocations to alternatives and more complex portfolio structures that required greater risk oversight.
Over the course of its roughly 20-year relationship with MSCI, the firm progressively integrated MSCI’s index, analytics and climate solutions — including Barra factor models — to address these needs and strengthen its investment process.
As part of that progression, it now sought a solid analytical platform to better manage and measure risk, while being able to more quickly react to market shifts. Through its equity factor analytics, MSCI equipped Vestcor with tools to construct more resilient portfolios, manage downside risk, and make more informed investment decisions.
In 2022, representing a nearly fourfold increase since 2003.3
Covered by Vestcor, supported by over 140 service professionals.
Of total AUM in 2023, up from less than 12% in 2014.
ChallengeSeeking a new culture of risk
Vestcor, an independent not-for-profit company, provides global investment management services to 10 different public sector client groups representing roughly CAD $20 billion in AUM. It administers the day-to-day operations of 11 public sector pension plans and four employee benefit plans, representing over 111,000 active and retired members from 140 employer groups.
Vestcor has grown significantly since its inception in 1996. In particular, its allocation to alternative assets grew sharply, rising from less than 12% of its total AUM in 2014 to over 32% in 2023. But despite the complexity that came with alternative investment and active strategies, the firm still managed over 80% of its assets using in-house investment teams.
The firm needed a new risk management structure that supported its aggressive growth and complex operations, as well as improved its ability to communicate risk information to stakeholders.
Vestcor faced:
- Rapid growth and strategic diversification.
- Increased allocation to alternatives.
- More complex target benefit structures requiring tighter risk limits.
- A need for more sophisticated oversight and reporting.
ActionAdopting tools to build resilience
Vestcor evaluated the vendor landscape and chose MSCI for its long-standing expertise in serving global asset owners and its ability to cover a range of asset classes — including equity, alternatives, private equity, real estate and infrastructure.
It sought a vendor that focused on the needs of asset owners but was also able to deliver analytics to firms providing day-to-day investment management services. MSCI’s equity factor analytics enabled Vestcor to:
Identify and manage the investment traits that influence stock and portfolio risks and returns.
Classify and estimate equity risk while evaluating the relationships between securities and returns.
Construct portfolios by focusing on specific dimensions and attributing performance across factor characteristics.
What MSCI delivered
Equity Factor Models
Portfolio construction, risk management and factor investing tools designed to help you build more resilient, data-driven portfolios.
“Vestcor had grown significantly in complexity, scale and ambition, and we needed a relationship that could grow along with us, supporting our equity portfolio construction and investment process. We adopted MSCI’s analytics to gain new insights into our risk and return drivers for clients — and we see potential for this relationship to expand.”
Jon Spinney, Vestcor CIO
Impact Creating a unified risk framework
For Vestcor, the analytics played a critical role in positioning the firm to better mitigate emerging risks from inflation to deglobalization — to build institutional resilience and react more efficiently to market shocks with deeper insights into its risk and return drivers.
Vestcor became better equipped to understand its exposures and due diligence mandates, manage its operational risks, identify market opportunities, and make short- to medium-term investment decisions for clients.
With risk assessment integrated as an essential component in the investment approach, it can better prepare pension plan investment trustees for how portfolios might behave under various market conditions, conveying data and analytics in a real-world context.
Ultimately, Vestcor gained tools designed to strengthen its risk culture, meet the demands of more engaged clients, and appeal to a wider market of asset owners.
Deeper insights
The tools enabled the firm to gain more insight into risk and return drivers for clients.
Improved agility
The platform positioned Vestcor to react quickly to market shocks and navigate an increasingly demanding risk culture.
Common language
Vestcor was able to implement an analytical platform that serves as a shared connection between the risk and investment teams.
Strengthened oversight
Vestcor was able to build a stronger risk governance framework and improve client communication.
1 Vestcor Inc. is a client of MSCI Inc. and MSCI ESG Research LLC and consented to its inclusion in this case study. Vestcor Inc. did not receive any compensation in connection with this article. Any results achieved by Vestcor Inc. are specific to its use case and are cited for informational purposes only. Other investors may not experience similar outcomes.
2 Source: Vestcor, as of December 31, 2022.
3 As of December 31, 2022.