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“Governance structures are key to appropriately setting and achieving your objectives. There is some empirical evidence that governance spend and investment performance are positively correlated. That said, you need to be realistic about what you can do successfully with your resources, organization, and decisionmaking capabilities. We do internally what we think we can do with competence. There were 65 internal staff when I joined USS in September 2009; now, there are 90. We’ve built up teams in a few different areas— notably across our control functions—the investment risk team, the legal department, and compliance. Besides these, however, our alternatives team has also grown and is now 15 strong. We are extending the range of our activities here, including both fund investments and co-investments. We’re not at the level of some of the Canadian funds yet, where alternatives broadly defined may comprise near to 50% of the assets. Their strategy sits well within heavily internal and direct management. Unlike some of these funds, we haven’t led a consortium or made solo direct investments yet. At some point, we might cross that bridge. Meanwhile, co-investment hopefully will help us to achieve better returns and reduce cost drag. To secure the talent, we need to be successful, we must offer a credible proposition in a competitive market. We don’t and can’t compete with the likes of Goldman, but the ethos here and the associated overall package hopefully will draw and retain the right people for our goals. We are long-term, not quarterly, performance; about investing, not distribution; about delegating responsibility and supporting the success of our team. However, clearly, there are skill domains we can’t reach cost-effectively. When these are needed to accomplish our target asset allocation, we go external. As for our allocation, we are moving gradually to a less risky allocation relative to our liabilities, but not toward a matching or immunized portfolio. We have more listed equities than the typical endowment model and are broadly converging toward 50% equities, 20% fixed income, 20% alternatives, and 10% property (mainly British commercial properties). When I arrived, the alternatives bucket was closer to 10% – it is now around 16% and has been funded out of developed market equities. Of this, roughly 8% is in private capital, 3% in infrastructure, 4% in hedge funds, and 1% in timber and commodities. We’re not attracted to commodities as a strategic allocation, to forever-rolling one-month futures contracts. We are open to other approaches—and commodities are attractive as a tactical allocation or potentially as an active management domain within a hedge fund. We’re looking to develop our allocation to other alternatives, including infrastructure. We remain an open defined benefit scheme, so we have long-dated, inflation-linked liabilities. The draw for us toward infrastructure is to secure long-dated income streams with inflation linkage, congruent with our liabilities. In the end, it is a matter of knowing what you are looking for and working out how you can best access it. Your governance structures should help you to get there.”