Purposeful Investing: Pension Fund’s Investment Strategy

Originally Published in the Fall 2023 issue of The Bridge

As one might imagine, we frequently receive calls and emails asking about the specific investments that back our various products. Although account holders don’t own these underlying investments (or experience the associated risk of their price movements), the asset allocation is of interest to members when assessing the potential for annual Good Experience Credits (GECs). GECs act as an additional return on top of the base rate of interest. The asset allocation, however, provides only part of the explanation of the underlying investment performance.

To start, the general asset allocation backing each of our specific products comprises a highly diversified mix of investments. These investments include equity holdings in a variety of large and small companies (domestic, developed international, and emerging markets) and an equally extensive array of fixed-income securities (United States and international corporate and government securities). In addition, our tax-advantaged products have exposure to what we call alternative assets, which include private equity (investments in nonpublic companies), natural resources, and real estate. All of these investments make up the investment pools backing our products and, at the most granular level, consist of thousands of individual securities that meet the strict diversification and risk considerations set forth in our investment policy. Within each asset class, professional managers with specialized expertise in that type of investment are hired. Investment staff can select any manager in the world to manage a portfolio and have a highly specific, lengthy, and detailed process for selecting and monitoring these managers. We are also deliberate about the amount of dollars we allow each manager to invest, a practice that helps reduce portfolio volatility and associated risk.

Second, given the nature of our products, we don’t feel the need to make frequent changes to the overall long-term asset allocation, enabling us to maintain a disciplined investment philosophy aligned with long-term investment goals. This approach includes systematically rebalancing the assets back to the appropriate strategic target when the overall risk profile becomes suboptimal. Part of this investment discipline also enables us to maintain adequate liquidity not only to meet the needs of a specific product but also to take advantage of unexpected short-term investment opportunities that occasionally arise in the markets.

Finally, we pay close attention to the fees paid to investment managers and banks that provide their services. Through their superior investment performance and value-add, we expect to be compensated through investment returns for any fees we pay these managers.

Although asset allocation is of primary importance to overall product returns, other variables are at play that allow us to invest purposefully. Managing our investments with a specific focus on not one but all of these variables — maintaining a proper allocation, hiring quality successful investment managers, adhering to a time-tested and disciplined investment process and keeping a keen eye on costs — enables us to expect to continue providing GECs, which, when combined with the base rate and downside protection, provide our members with an attractive and competitive return on their investments.