Success is measured as achieving the stated investment objectives over the investment horizon. Effective governance promotes decisiveness, efficiency and accountability, and ensures we prioritise research and activities that have the greatest potential to contribute to maximising our investment objectives.
Our members have long investment horizons, and this gives us an investment advantage over other short-term investors. Portfolio construction that embeds a long-term investment horizon has the advantage of greater predictability in asset class returns and risk, which improves model forecasting accuracy, and allows our members to benefit from compounding.
We understand we must take well-defined investment risks to generate returns and achieve the Fund’s investment objectives and that diversification across asset classes and risk drivers can improve risk-adjusted outcomes. We understand that minimising fees also reduces leakage from our members’ accounts.
Our long horizon also allows us to accept a level of illiquidity, and demand a higher return for being a liquidity provider to capital markets. Our longer-term objectives provide the confidence and framework to be ‘go against the herd’ through business cycles. This helps us manage both return and risk, and therefore creates value for our members.
Our long horizon also encourages us to focus on and prepare for emerging trends, growth opportunities and risks in capital markets (for example, climate risk), beyond the average investors’ time horizons. This ensures the portfolio is positioned for these opportunities and risks ‘ahead of the herd’, generating value for our members.
Active management can add value in rising and falling markets (after all fees and taxes). It requires skill to identify market inefficiencies across a broad range of opportunities, and persistent expert investment managers.
The attractiveness of active management opportunities varies and we will focus on those that are expected to be persistent, cost effective, appropriate for our scale and aligned with our long horizon investment objectives and beliefs.
Rigorous market and manager research, across qualitative and quantitative metrics, as well as effective operational due diligence, can identify active management approaches that are repeatable and sustainable.
By ensuring alignment with total portfolio outcomes, and investing in a diversified set of active approaches, we can construct portfolios that are robust to different market conditions.
We recognise that active management partnerships generate an ongoing flow of investment ideas from a diverse group of market participants, which can expand investment thinking and present new insights on opportunities and risks to generate value for our members.
Investment decision-making is more effective if it’s focused on the total portfolio, rather than individual asset class silos. This allows for a deeper understanding of the aggregate risks and pricing, improved insights and collaboration, and ultimately better portfolio decision-making and outcomes. It also strengthens alignment with member outcomes.
Market returns and risks are time varying, and are somewhat predictable over the medium to long term. This can be harnessed to improve portfolio outcomes by dynamically altering asset allocation or levels of risks as market conditions alter. We harness both quantitative and qualitative analysis to inform our portfolio positioning and risk analysis. We recognise that the future is ‘unknowable’ and therefore scenario analysis and stress testing are critical to identifying and preparing for potential risks and opportunities.
By modelling future expected net returns and risks, and creating a ‘level playing field’ where each opportunity is assessed relative to others, and the portfolio is assessed relative to its investment objectives, we aim to ensure we allocate capital into favorable investment opportunities for the portfolio. This process requires an understanding how different types of assets interrelate in different economic and financial environments, to enable a true assessment of their relative attractiveness and contribution to portfolio risk.
By building strong partnerships with firms who demonstrate alignment with our organisational values, culture and purpose, and our investment beliefs, we can better deliver ambitious financial futures for our members, while also having a positive impact on the world they will retire into.
We are an attractive long-term partner given our strong purpose and culture, our inspiring membership, the professionalism of our team, the strength of our brand and our growth trajectory.
Building long-term partnerships requires trust, and a commitment to work cooperatively to foster a positive, mutually beneficial relationship. Our willingness to share ideas and insights, emerging risks and opportunities, and discuss and create innovative solutions helps deliver value to members.
It allows us preferential access to ideas, opportunities and the ability to negotiate agreements which reflect our targeted objectives, while benefiting from our scale and future growth.
Owning a number of collective organisations, which share our profit-to-member ethos, provides aligned, quality, cost-effective access to global investment advice and opportunities.
Through collaboration with aligned global partners, we can work together to drive improvements to the financial system in an efficient and coordinated way.
HESTA recognises that members’ best interests are served by supporting a healthy economy, environment and society. Considering ESG factors enables us to better understand risks and opportunities, and to generate sustainable long-term returns, while having an impact on the world our members will retire into.
As a “universal owner” we are exposed to the entire market and therefore affected by system-wide externalities (such as climate change) that cannot be mitigated simply by diversification or divestment. As such, in order to deliver strong financial returns for our members’ financial futures, we must address financial and non-financial considerations and advocate for necessary changes to the financial system. Environmental, social and governance (ESG) issues affect the performance of our investment portfolios, and are therefore integrated into our investment process and decision-making.
By supporting the United Nations Sustainable Development Goals (SDGs), which respond to the world’s most important challenges, from climate change to gender inequality, we can focus our capital on investment opportunities that not only generate strong investment returns, but also contribute to solving some of the world’s biggest challenges.
Active ownership is an important aspect of managing externalities and ESG risks. By actively voting and engaging with companies, we can influence important ESG issues that can impact long-term returns and risks.
In our position as a significant asset owner representing our members, we believe we must play a leadership role in the industry to influence meaningful change on responsible investment.