Institutional investors are sharpening their focus on the financial impacts of climate change and aligning portfolios with the goal of net-zero emissions by midcentury. That challenge, together with disruptive innovation, factor investing and potential risk in bonds, took center stage at MSCI’s latest Institutional Investor conference.
Climate Change and Other Challenges Facing Investors
Highlights from the gathering, which was co-hosted by CalPERS and CalSTRS on Sept. 21-22, 2021, include:
- “Divestment is like selling your house and moving to another town when you disagree with the school board, rather than attending meetings and forming coalitions to advocate for change,” Chris Ailman, CIO of CalSTRS, told Henry Fernandez, MSCI’s chairman and CEO. “Being a large institutional investor gives you real leverage.”
- "What was it that made a firm survive and be long-lived? Financial attributes explained more of a company’s lifespan than industry membership. It was better to be a high-quality company in a fossilized industry than a low-quality company in an ascendant industry. The quality of the firm mattered more than picking the right industry,” said Anil Rao of MSCI’s research on resiliency.
Institutional Investor Dialogues
Henry Fernandez Interviews Chris Ailman
How CalSTRS approaches climate change in managing its portfolio.
Investors Discuss Climate Risk
How leading practitioners measure and manage climate risk.
Research: The Role of Bonds in Multi-Asset Portfolios: Fading or Changing?
Given low real yields and higher inflation, Andy Sparks, Head of Portfolio Management Research, re-examined the economic rationale and empirical evidence supporting bonds in multi-asset portfolios. Afsaneh Mastouri, Fixed Income Index Solutions Research, then explored whether fixed income climate and ESG strategies could improve portfolio risk/reward characteristics.
- Inflation - “Despite the recent inflation spike and despite the Fed’s massive stimulus since the onset of the Covid crisis, the market seems to have confidence that the Fed will be able to keep inflation in check.”
- Diversification - “Recent evidence suggests that bonds have still offered important diversification benefits against equity market volatility.”
- Climate - “We have not seen much evidence of wider credit spreads in US industries or sectors like energy, materials and utilities that have been more exposed to climate change risk.”
To learn more, view Climate Transition Risk in High-Yield, Climate Transition and Bonds and What Could a Rate Hike Mean for Portfolios?
Presentation: Long-Horizon Asset Allocation for Private Assets
Allocations to private assets continue to rise as investors seek higher performance, diversification, income, and inflation protection. Yet these investments also bring different macro exposures and liquidity risks which require new investment approaches.
“Investors need a new framework for asset allocation for private assets that provides a unified lens across asset classes, horizons, risk and capital market assumptions,” explained Peter Shepard, Head of Analytics Research and Product Development.