How SWIB’s New Actively Managed Portfolio Aims to Be ‘Different’

Wisconsin’s Select Equity fund, launched just four months ago, aims to use such techniques as long-short pairings.



Passive investing has long been the preferred choice among asset allocators, especially pension funds. After all, active investing has historically been a laggard, and it costs more than just following an index. This year through July, a mere 36% of active funds and exchange-traded funds beat their index benchmarks, according to a research report by Bank of America Global Securities.

But, assuming institutions’ results resemble retail ones, what about the one-third of active strategies that can best the indexes? Finding that is a quest of the State of Wisconsin Investment Board (assets under management: $143 billion). SWIB oversees the assets of the state’s retirement system, which is 106% funded, and under CIO Edwin Denson, it has striven to add alpha through active investing.

Toward that end, SWIB on April 1 launched a special actively managed portfolio called Select Equity. This concentrated portfolio aims eventually to own 50 to 70 stocks and be valued overall at up to $20 billion. So far, it has bought around 35 stocks. Like other active equity investments at SWIB, this fund will be internally managed and focus on fundamental analysis—and it also has an intriguing long-short structure.

“We have a lot of information in the organization,” including quantitative capabilities, says Susan Schmidt, who joined SWIB a year ago and oversees public equities. “We have phenomenal scale.”

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For Schmidt, who previously ran U.S. equities at Aviva Investors, a London-based asset manager, active investing “allows us to be nimble and do better than the index.”

While not revealing what specific stocks the fund invests in, Schmidt says SWIB is ahead of its benchmark—the MSCI World Index, up 14.7% year to date—thus far in its short life: “We want modest turnover and are not playing” with quarterly results in mind.

To hear Schmidt tell it, the new portfolio sounds as if it adopts a value approach when she says, “We want to find something the market is missing” and stocks “with a catalyst in their future.” But she adds that she does not “adhere to a style box” and can buy growth, value or core stocks, albeit names that are not wildly expensive.

She casts her portfolio members as “growth at a reasonable price.” Select Equity will not buy momentum stocks. Ditto for deep value shares, which Schmidt fears “could go out of business,” leaving the fund with a loss.

The long-short tactic is a means to protect the fund’s gains and, Schmidt says, is structured to “enhance capital efficiency.” A particular stock will be offset by a short position against a basket of stocks (which Select Equity creates) in the same sector as the long position. The short basket is equal weighted and avoids potential merger targets—which usually spike in price after an acquisition proposal surfaces—and stocks with low liquidity.

SWIB’s new actively managed vehicle is “different,” Schmidt says.

Being different always is risky. But it also carries the alluring potential of being very successful.


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UN Pension Fund Loses More Than $13B in 2022

However, the Joint Staff Pension Fund’s asset value had recouped more than half of those losses by July 20.



The United Nations Joint Staff Pension Fund reported a preliminary decrease in market value of 14.7% in 2022, as it lost more than $13 billion during the year, according to its annual report. The fund ended 2022 worth $77.9 billion, down from $91.5 billion at the end of 2021.

However, the value of the pension fund has risen to $85.5 billion as of July 20, according to Pedro Guazo, who oversees investment of the fund’s assets and reported the figure at the pension fund’s 75th session late last month. 

As of the end of 2022, the UNJSPF’s asset allocation was 50.63% in public equities, 28.73% in fixed income, 9.19% in real estate, 8.33% in private equity, 2.65% in cash and cash equivalents and 0.47% in real assets.

Every four years, the pension fund hires an outside consultant to conduct an asset liability management to forecast the likelihood that the current contribution rate will remain sufficient in the future and that future solvency metrics will remain within an acceptable range. The study also evaluates current and alternative asset allocations and assesses whether the assumed rate of investment return is expected to be met over the longer term.

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The UNJSPF’s office of investment management uses the results to set the pension fund’s investment strategy, while the board uses the study to understand the effects of potential plan design changes and future demographic trends.

The most recent study was announced at the pension board session, which concluded July 31 in London. The 2023 Asset-Liability Management study considered various scenarios for the future, including ones that incorporate climate risk. According to the pension fund, under a baseline scenario with moderate growth and a suitable asset allocation, it expects the required contribution rate to remain within a targeted range of 21.7% to 25.7% of pensionable remuneration, which currently would not trigger a change in the contribution rate.

The study also considered the impact of a financial crisis arising from the world’s failure to transition to net zero carbon emissions. Based on the study’s analysis, the scenario would be more challenging for the fund, which therefore intends to monitor the long-term impact of climate risk.

The pension’s board said it will submit its report on its 75th session to the U.N. General Assembly in the coming weeks, and the report will be published some time next month.


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