Public Sector Investment Funds: How the Best-in-Breed Evolved

Abstract

This paper looks at the evolution of ten public pension and sovereign wealth funds which have been on the cutting edge of innovation and best practice with respect to governance and investment management. The analysis is based on an inductive approach, proceeding from specific observations to general principles. In particular, we review ten case studies of individual funds from three regions – Northern Europe, Canada and Australasia. We look at three funds in Canada and one each in Australia, the Netherlands, Denmark, Norway, New Zealand, Singapore, and Sweden, using the same template for each entity. We start with a brief description of the fund and explicate its liability profile, covering the source of funding and the intended use for the assets. We then review the fund’s current governance arrangements, with a particular emphasis on how these may have helped or hindered the fund’s investment professionals in their activity. We then look at the evolution of the fund’s investment strategy, focusing in particular on asset allocation and portfolio construction. We conclude each case by highlighting a feature unique to the fund in question, which we believe is worthy of further study and emulation by their less advanced peers. At the end, we bring all of these separate strands together, with a view to formulating some general observations about how the best‐in‐breed public pension and sovereign wealth funds within our universe have evolved with respect to governance and investment strategy. Specifically, we try to determine whether the ten funds in question have been converging onto one model, or whether their experiences suggest increasing divergence. This section can effectively be viewed as a distillation of some preliminary recommendations for the less advanced funds, based on what we believe to be an emerging consensus around ‘best practice’ in public sector fund management