The New Frontier Investors : How Pension Funds, Sovereign Funds, and Endowments Are Changing the Business of Investment Management and Long-Term Investing

Who holds the power in financial markets? For many, the answer would probably be the large investment banks, big asset managers, and hedge funds. These are the organizations that are in the media's spotlight and whose leaders and employees command outsized salaries and bonuses. They are the supposed leading edge of global finance and their power seems almost absolute, even as questions abound about their social and economic utility. But more and more asset owners are confronting the status quo, the power to exact high fees and the focus on the short term. __The New Frontier Investors__ chronicles the rise of this new group of long horizon asset owners that includes some of the world's largest pension funds, sovereign wealth funds, and endowments. These asset owners are driving the business of asset management to a new frontier by retaking responsibility of the end-to-end management of their investment portfolios and by re-conceptualizing investment decision-making. The lessons illustrated in __The New Frontier Investors__ fly in the face of conventional wisdom, which has it that these asset owners are at a disadvantage to the private sector fund managers and other service providers. These asset owners are supposedly not able to attract talent nor do they have the organizational capabilities to compete. That many are located far from the markets in which they invest only exacerbates the problem. But this is incorrect. This expanding group of asset owners is learning how to make the most of their scale and long time horizons, finding new ways to attract talent, to collaborate, and to build greater alignment with the users of capital. They are not at a disadvantage. They are at an advantage. __The New Frontier Investors__ is essential reading for anyone wanting to see a change in global financial markets and the professionalization of asset owners worldwide, from public pension funds and sovereign wealth funds to foundations and endowments. It is thus required reading for the senior executives and employees working in the field of beneficiary institutional investment, as well as government officials and others that have a stake in the design and governance of beneficiary financial institutions and long-term capital. Dedication 6 Preface 8 Acknowledgements 14 Contents 16 List of Figures 20 List of Tables 22 List of Boxs 24 1: The Foundations of Capitalism: Beneficiary Asset Managers 25 Pension Fund Capitalism 26 Sovereign Fund Capitalism 29 The Geography of Finance 31 Large Frontier Cities 34 Centres of Global Finance 35 Small Cities on the Distant Frontier 35 Small Cities on the Frontier 36 Conclusions 37 2: Unleashing Innovation Through Better Governance 39 What’s Your Mission? 41 What Do You Believe In? 42 What Is Your Comparative Advantage? 43 How Do You Develop Investment Beliefs? 44 Limit Focus 45 Alignment with Organizational Objectives 46 Understanding Influences 46 Social Versus Internal Logic as Bases 46 Mobilization 47 Investing in Governance 48 Conclusions 51 3: Unleashing Innovation Through People 53 Why Is it Hard to Find the Right People? 54 Green, Grey, Grounded 55 Tomorrow’s Strategy: ‘Moneyball’ 58 Conclusions 61 4: Unleashing Innovation Through Collaboration 62 The Benefits and Challenges of Collaboration 63 The Cleantech Syndicate 65 Motivation 65 Structure 67 Responsibilities 67 Investments 67 Implementation 68 A Path Forward 70 Setting Up Co-investment Vehicles and Platforms 71 The Alliance 71 The Syndicate 72 The Seed 73 The Choice 73 Conclusions 74 5: Unleashing Locational Advantage 76 The Goals of Geographic Expansion 78 International Financial Centres 78 Non-financial Centres 81 The Challenges of Geographic Expansion 82 International Finance Centres 82 Non-financial Centres 83 Geographic Expansion: Key Lessons 84 Governance and Culture 84 Alignment with Fund Strategy 85 Setting Goals 85 Staffing 86 Politics 86 Scalability 87 Conclusions 87 6: The Valley of Opportunity: Bringing Innovation to Venture Capital 89 The Valley of Death 91 The Valley of Opportunity 95 The Innovation Alliance 96 Success Factors 98 Lessons Learned 98 Principles 99 Policies 101 Conclusions 101 7: Does Transparency Restrict Innovation Among Long-term Investors? 103 Threatening the Status Quo? 106 Transparency and Long-term Investing 109 Aspects of Transparency 113 Two Views of Transparency 116 Conclusions 117 8: Catalyzing Development in a Short-term World 119 Sovereign Fund Solutions 122 Macroeconomic Stability 122 Productive Efficiency 124 Distributive Justice 128 A Basic Typology 129 People and Organizational Design 130 Two Views of Finance 132 Intersecting Politics 133 Principles, Policies and Pitfalls 134 Principles of Governance 135 Policies of Management 136 Pitfalls to Avoid 137 Conclusions 138 9: Ten Pillars for Centennial Outperformance 140 The Pillars of Our Future Success 143 Pillar 1: Less Is More 143 Pillar 2: Risk Rules Everything 144 Pillar 3: Concentration 145 Pillar 4: Creativity Pays Dividends 147 Pillar 5: Putting Information into Action 148 Pillar 6: A Committed Team 149 Pillar 7: The UC Advantage 150 Pillar 8: Execution and Alignment 151 Pillar 9: Leveraging Technology 152 Pillar 10: Centennial Performance 153 Final Thoughts 154 Bibliography 156 Index 162 Front Matter....Pages i-xxiii The Foundations of Capitalism: Beneficiary Asset Managers....Pages 1-14 Unleashing Innovation Through Better Governance....Pages 15-28 Unleashing Innovation Through People....Pages 29-37 Unleashing Innovation Through Collaboration....Pages 39-52 Unleashing Locational Advantage....Pages 53-65 The Valley of Opportunity: Bringing Innovation to Venture Capital....Pages 67-80 Does Transparency Restrict Innovation Among Long-term Investors?....Pages 81-96 Catalyzing Development in a Short-term World....Pages 97-117 Ten Pillars for Centennial Outperformance....Pages 119-134 Back Matter....Pages 135-147