At Pension Bridge: New Hawaii CIO Speaks on Hedge Funds

Elizabeth Burton

Hedge funds have had a rough time in 2018, logging their worst performance in 10 years, losing 3.4% on average, according to Preqin research. However, at a Wednesday panel on hedge funds at the Pension Bridge conference in San Francisco, the new Hawaii pension fund chief investment officer (CIO) touted their usefulness.

“For the first 19 years of my life, I was raised to believe that hedge funds were the devil,” said Elizabeth Burton, who last October took over as CIO of the Hawaii Employees’ Retirement System ($16.5 billion).

Burton acknowledged that hedge funds weren’t for everyone, as pension plans have differing goals. For her money, though, the hedge funds’ current rough patch is temporary, like that of every other asset.

“Hedge fund performance hasn’t been fantastic, but I can’t think of any strategy that’s not a Ponzi scheme that hasn’t had a period of underperformance,” she said. “If you’re just going to exclude any industry asset class that’s had bad performance, you should never do high yield.” Junk bonds did well in 2018. But to exclude an asset class due to cyclical bad returns, she went on, “is kind of ridiculous.”

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Known as a risk-averse plan, Hawaii’s does not allocate much to hedge funds —and when it does, it’s not in search of market-beating returns, but rather aims to offset risk. But the new CIO has an outside-the-box mindset.

“I would always find a way to put the beta into the portfolio,” said the former Maryland State Retirement and Pension System’s managing director, meaning that by adding private markets exposure to the hedge fund portfolio, she kept the beta low and smoothed volatility. There, she oversaw the Maryland fund’s then-$4 billion hedge portfolio.

And she wants to be selective in picking hedge funds. “I really don’t like the bucketing approach,” she said. “I think you need to decide what kinds of exposures you want.”

Exposures she does like include quant multi-strategies. These funds, she indicated, are appealing because they have lots of resources and technology, and are diversely invested. “I don’t ever recommend just one hedge fund strategy,” she said.

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Tags: Elizabeth Burton, Hawaii, Hawaii Employees' Retirement System, Hedge Funds, Pension, Pension Bridge

Norway’s Ministry of Finance has appointed a committee to review the ethical guidelines for the $1.05 trillion Government Pension Fund Global. It also introduced absolute thresholds for the product-based coal criterion.

The Ministry said that because the fund has grown nearly nine-fold from $119.6 billion since the ethical guidelines were introduced in 2004, it is now invested in a greater number of companies, with larger ownership stakes, and expanded geographical diversification.

“These developments influence both expectations and the implementation of ethical guidelines and responsible investment,” Siv Jensen, Norway’s Minister of Finance, said in a release. “We are therefore now appointing a committee to examine the guidelines.”

The committee will assess whether there is a need for amending the guidelines for observation and exclusion, including whether some criteria should be omitted or new ones added. It will also evaluate whether the current measures are suited for investments in countries whose legislation and regulatory frameworks are in conflict with recognized international conventions and ethical standards, and in countries with limited access to information.

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The Ministry said the committee will start out from the fundamental purposes and principles on which the current guidelines for ethical and responsible investment are premised. The review will be based on ethical norms that are broadly supported in Norwegian society and reflect international agreements and initiatives ratified and endorsed by Norway.

“Exclusion is a forceful measure that should be reserved for the most severe violations of norms,” said Jensen. “It is also a fundamental principle that the fund shall not be used as a foreign policy or climate policy instrument.”

The committee will submit its report by June 15, 2020.

Norway also introduced absolute thresholds for the product-based coal criterion, and presented assessments in relation to the conduct-based climate criterion.

This year, the coal criterion has been amended to also capture companies with considerable coal-related operations in absolute terms. The relative 30% thresholds under the criterion are not changed, but are supplemented by absolute thresholds for coal mining and coal power capacity.

The Ministry of Finance has proposed setting the thresholds at 20 million tons for coal mining, and 10,000 MW for coal power capacity. This will result in the criterion also capturing companies with considerable coal-related operations in absolute terms. The Ministry said it will be monitoring the implementation of the absolute thresholds and assess potential threshold reductions.

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Tags: coal, Government Pension Fund Global, Norway, Siv Jensen