“Kirsty has a very unique mix of experience that makes the ideal Next Gen. She has been at an Asset Manager, mega Broker/Dealer, an NGO, and now two pension plans. That has given her the mix of risk and return, stakeholder, and shareholder issues in a highly complex social milieu. I believe the future CIO roles will be more demanding that today. They will demand keen awareness of global issues, climate change, ESG, and how to squeeze a sustainable return out of a crazy world. Kirsty has already demonstrated the skill to balance all these competing demands and still gets the job done, Dare I say, in a classic British style, she stays calm and carries on.”
—Chris Ailman, CIO, CalSTRS
Kirsty Jenkinson is the California State Teachers’ Retirement System’s Director of Sustainable Investment & Stewardship Strategies. Jenkinson works to incorporate her experience spanning 25 years in finance together with an ambition to execute long-term investment strategies that deliver positive and productive societal and environmental change.
Prior to CalSTRS, she gained experience in multiple different geographic regions between both the sell-side and buy-side, as well as a research non-profit focused on sustainable economic development. At Goldman Sachs, she helped develop a high-yield credit research team in Europe when the company was following the market’s expansion beyond the United States and she was heavily involved in discussions pertinent to banking sector governance while working in asset management during the 2008 financial crisis. At CalSTRS, Jenkinson is responsible for managing an investment portfolio, overseeing the fund’s ESG-related stewardship activities and engaging with key stakeholders.
Jenkinson earned recognition as a NextGen by pursuing her goals to provide positive risk-adjusted returns for the nation’s second-largest pension fund, while at the same time leveraging the fund’s significant scale to catalyze an equitable, low-carbon, global economy.
CIO: What did you think you understood before the COVID-19 crisis … and if, during the crisis you were proven wrong, what did you learn from it?
Jenkinson: I experienced the Asian financial crisis while working on a trading floor in London in my first job after university. I was still in London, working with multiple financial institutions, when the 2008 crisis unfolded. As a history graduate, and after experiencing these crises, reviewing the past for clues about the present is a tactic that I have learned to rely on. However, right now, that tactic isn’t helping at all! We’re living through a completely different crisis where the epicenter is non-financial. It’s a health crisis, and so every day there are new opportunities to learn. I am surprised by the apparent optimism and resilience of the market, given the huge uncertainties that remain around the trajectory of the virus and the damage it has already inflicted on economies and societies. I know that the markets and the economy are not one and the same—but when the gulf between the two widens, I get frustrated as it can bring out what I believe are the worst elements of our industry: disruptive short-termism, fickleness, and unmitigated opportunism. I know that the gap between asset valuations and the ‘real world’ will always exist, but I also feel strongly that long-term focused asset owners, like CalSTRS, have a really important role to play in supporting the financial and
economic recovery and building a future that our beneficiaries want to live in.
CIO: What took you by surprise? What worked?
Jenkinson: I was astonished by the speed at which our whole world changed in a matter of days and impressed by the way our team adapted to this new reality. We closely watched the global spread of the virus, but I distinctly remember being in the office with the whole team on Friday, March 13, and only four days later asking everyone to stay at home. Our transition to ‘home offices’ worked—and thankfully continues to work—despite the challenges! I feel very positive about how our whole Investments Branch continues to manage our responsibilities and communicate clearly as we shelter in place. I am energized by my colleagues’ creativity and resilience. We’re finding new ways to get our work done, collaborate, and build relationships that will improve the way we operate in the future.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
Jenkinson: For the past year, we’ve been significantly reshaping the portfolio that my team oversees, and these reforms continue, regardless of the shifts occurring in the market. The portfolio currently includes highly concentrated public equity activist managers that seek to transform company strategies and governance, and sustainability-focused equity managers that focus on environmental, social, and governance factors as value drivers.
Looking forward, we think there are significant opportunities and inefficiencies—many that may be exacerbated by current dynamics, particularly in the energy sector—that we can take advantage of by developing a broader ‘sustainable innovation’ portfolio. We’re in the process of creating this new portfolio and expanding the opportunities that we can invest in across not only public asset classes, but also private markets. By seizing these opportunities, we aim to contribute to the total fund’s positive risk-adjusted returns while also creating demonstrable environmental, social and governance outcomes.
CIO: ESG has been a tidal wave force behind recent innovative investment framework in our industry. How do you see the ESG framework and effort be influenced by the recent event?
Jenkinson: Yes, thankfully we are seeing ESG ‘integration’ finally gain momentum with investors, but it has taken a long time to get to this point from when I started in this area in 2001. I’ve seen the industry’s approach evolve and improve over the years, but I’ve been constant in my belief that an understanding of ESG factors simply helps better position portfolios for the shifts affecting our global economy. Our world is being re-shaped by sustainability-related factors as our global population grows and rightfully demands higher standards of living. We must find ways to use our resources more efficiently, decarbonize the economy, and it’s imperative we do so in ways that are equitable at the same time. These shifts create tremendous opportunities and some risks for us as investors. The current crisis, as many commentators have explained, shares similarities with a future climate crisis. Both affect the whole world and are preventable—yet they demand enormous advance preparation and global coordination. The current crisis also shines a spotlight on the interconnectedness of humanity—and thus brings into sharp focus companies’ relationships with their employees, suppliers, customers, and communities. I sincerely hope that the coronavirus pandemic and its impacts will help us to manage risk and build resilience to create a more sustainable global economy.
CIO: What’s your view on the “perfect storm” that is currently impacting the oil markets, and how will that change how you invest in upstream energy?
Jenkinson: The current ‘storm’ represents a significant inflection point for the energy industry. The demand shock that prompted oil futures to trade negatively for the first time in history demonstrates how long-term trends accelerate in times of crisis. I’ve been most focused in recent years on the demand shifts required to meet the goals of the Paris Climate Agreement—to limit global temperature increases to 1.5 degrees Celsius above pre-industrial levels. From a climate perspective, even though global emissions are estimated to drop 5.5% year-on-year due to the effects of COVID-19, they actually need to fall by 7.6% every year this decade to limit global warming below the 1.5°C scenario. So, with this front of mind, I’m most interested in what the current oil market dynamics mean for the divergent low-carbon transition plans of the majors and also for the growth of renewable energy. I think the long-term economics of the energy industry are dramatically changing before our eyes and investors need to focus on them because they are going to continue to dictate the energy transition.
CIO: What’s your view on the fate of the Euro and the EU?
Jenkinson: As a Londoner who now lives in California, I was personally disappointed to see Brexit happen. I want Europe to be strong, not fragmented, but I’m pretty worried about the future path for the union. Clearly, it proved difficult during the global financial crisis in 2008, and it’s proving very challenging now, to manage disparate interests and divergent economies—not least in times of crisis when aggressive stimulus measures are required. In my professional capacity, I am particularly concerned that the fate of sustainable finance and investment will be much bleaker without the coordinated leadership and efforts of the EU. I don’t think the EU Action Plan on Sustainable Finance has garnered the attention it deserves in the US, but this very ambitious regulatory framework puts ESG considerations at the heart of the European financial system. It aims to create a common language for sustainable finance and requires financial market participants to disclose the degree of environmental sustainability of their products. I think it will cause a profound change in the nature of the global asset management industry and across the financial services industry more broadly. So, I have considerable vested interests in hoping the EU can thrive.
CIO: What do you think will be the impact of COVID-19 on developing economies?
Jenkinson: I don’t think it’s possible to group all developing economies together because the disease is taking a different path in each country, the economic impacts are felt in different ways, and government responses vary widely. This mirrors what we’re seeing in developed economies as well, as individual countries are implementing vastly different solutions to try and manage the current crisis. Clearly the oil-dependent economies of Venezuela, Angola, and Nigeria are going to face their own unique economic and social challenges. Perhaps the only common thread in the developing world is that we are likely to see a disproportionately high human cost of the virus, both in terms of health and livelihoods, as millions of workers are laid off across the supply chain factories of Asia and Latin America. It’s also inevitable that governments will rise or fall as a result of their handling of the virus, which may lead to regime shifts. As ever in emerging markets, these governance issues will likely dominate investor perspectives.
CIO: What are the new creative/innovative strategies that you are researching right now?
Jenkinson: We remain very focused on implementing what we call the ‘CalSTRS Collaborative Model’, or our approach to managing more assets internally and streamlining our external partnerships. This theme underpins how we are developing the ‘sustainable innovation’ portfolio that I referenced earlier. We are aiming to combine the extensive expertise that exists across our different asset classes with our knowledge of sustainability trends, like the transition to a low-carbon economy, to structure innovative opportunities and partnerships.
CIO: And professionally, where do you see the most exciting areas to specialize further over the coming years?
Jenkinson: I feel incredibly fortunate in my current role as I think it’s unique and I have so much more to learn. I’ve been at CalSTRS for less than 18 months, so in many ways, I feel like I’m just getting started! My responsibilities include managing an investment portfolio, overseeing our stewardship activities (which includes our corporate engagement and proxy voting activities) and managing our strategic relationships, including with our key stakeholders, the media, and the broader investment industry. Over the coming years I think these areas will keep me intellectually curious and help to broaden my world view—two very important drivers for me professionally.
CIO: How is the quarantine affecting the way you view teams and working environments, such as work from home, meetings, etc.?
Jenkinson: The biggest impact of having our entire Investments team working remotely has been finding ways to communicate more regularly, more intentionally, and more creatively. We’ve increased the number of check-ins, both across the different teams that I’m part of, and the one-to-ones with direct reports. I think it’s been even more critical than usual to communicate clearly about priorities, roles, responsibilities, and expectations. We’ve also tried to mix in a decent dose of fun to keep connections strong!
The other theme that I have been thinking about a lot is how best to balance creativity and innovation with routine and order. People are obviously responding differently to our current situation. Some love it and see opportunities for perpetual brainstorms, perhaps while walking their dog or baking a loaf of bread! Others can’t wait to be back in the office and crave some form of ‘normality’. Ultimately, I’m hoping to support these individual needs as best I can so we can all look back on this as a period of personal and professional growth and development.
CIO: What exercises have you found useful?
Jenkinson: I’m going to interpret this question as being about physical exercise as I’ve been pretty good at making time for this—which I confess isn’t always the case as it’s usually just an excuse to justify eating more of my favorite foods! Right now, though, it’s been essential for concentration, relaxation, and getting fresh air at the end of Zoom-filled meeting days. I feel completely spoilt being ‘locked down’ during the spring in sunny California where I’ve been enjoying running and cycling, plus playing some variation of cricket, frisbee, and soccer with my 5- and 7-year-old boys during have our evenings and weekends.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Jenkinson: I’m fortunate that in my role I get access to fabulous minds around the investing world. If I could read and fully digest a quarter of all the excellent research and analysis that comes our way, I’d sound (and obviously be) so much smarter. So, I’m going to broaden the scope of this question and say that I’d like to sit down with Mark Carney, the former Governor of the Bank of England. I believe he continues to play a leading role in helping the financial markets understand and respond to climate change. He obviously has deep financial knowledge, but he also has unique perspectives on systemic risk and the low-carbon economy. I’ve had the pleasure of meeting him briefly a couple of times, but a whole hour to really pick his brain would be really helpful!
CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place?
Jenkinson: Well, we’re all such zoom experts now that the meeting could take place virtually, with a fabulously exotic backdrop that need not make us feel guilty about our carbon footprint! That being said, I’m such a massive fan of traveling—for adventures and experiences rather than what used to be the humdrum of reality of business travel—that I can’t resist choosing a physical location. I think I’d have to pick a dramatic backdrop to amplify our discussion about the impacts of climate change on the natural world. The mountains of Ladakh in northern India would be a perfect venue and would position us appropriately, right between India and China, pivotal countries for the low-carbon transition.
CIO: Describe the weirdest interaction you’ve had with an asset manager.
Jenkinson: Sadly, there are still managers out there who think that when I say, “I’m focused on sustainable investment trends that drive financial performance”, they hear me saying something quite different. They interpret it as an overture to tell me what their firm contributes philanthropically—which of course is appreciated, but not aligned with my inquiries. The worst offender was a manager who provided an in-depth description of the free swimming classes they offer their staff. I obviously had a hard time linking that specific data point back to investment philosophy and decision-making, even though I was delighted they were thinking about employee health and wellbeing.
CIO: What should be an investment trend, but isn’t (yet)?
Jenkinson: I’m very passionate about the concept of ‘blended finance.’ This has long been a very significant theme with development finance institutions and philanthropic capital that see great potential in mobilizing private capital flows to support sustainable economic development, particularly in emerging and frontier markets. Relatively small amounts of donor or concessional finance help to alleviate specific investment risks and rebalance risk-reward profiles so that additional capital—including institutional capital—can be leveraged for projects that have attractive returns and also address multiple social and environmental challenges. I studied these concepts during my time at the World Resources Institute (WRI), a not-for-profit environmental and development think tank in Washington D.C., and I’m very eager for it to become an investment trend that is more broadly analyzed and adopted by global asset owners and asset managers.
