The last several years have challenged public investors in unprecedented ways. Prolonging the earlier environment of low interest rates and compressed term premia, the Covid-19 outbreak has challenged the outlook for asset prices, while highlighting the need to ensure adequate liquidity of investment portfolios. The sharp, but uneven, subsequent recovery has compounded the challenge, as extraordinary monetary and fiscal policy measures have interacted with a waxing and waning pandemic. More recently, the debate over the extent to which inflationary pressures will prove transient has forced yet another reassessment of investment decisions, tied in with questions about the timing and extent of the likely process of policy normalisation. Meanwhile, a growing sense of urgency around climate-related risks has led investors of all types to redouble their efforts to incorporate sustainability considerations into their investment processes, giving rise to additional trade-offs in their asset allocation decisions.
In this context, from 27 to 28 October 2022, the Eighth Public Investors Conference will aim to explore a variety of relevant issues, with particular emphasis on the following:
- New methodologies for risk-return modelling that incorporate the risks of the current environment: Financial models may be biased by the post-Great Financial Crisis environment and may be inappropriate for the “new normal”. How can the risk of higher interest rates and smaller central bank balance sheets best be incorporated into risk and return models? What are the appropriate models and risk factors to account for the shifting behaviour of asset returns under different economic regimes? Are there additional factors to be incorporated, such as those relating to fiscal or health policies, or the regulatory environment?
- Integration of environmental, social and governance (ESG) considerations into the investment process: How can the impact of sustainability considerations into the expected returns and risks of an asset best be assessed? How can risk management – at the enterprise and portfolio levels – be enhanced to incorporate ESG factors? How can asset allocation models be affected by ESG considerations, going beyond the classical wealth maximization framework? How should the data quality and heterogeneity issues concerning ESG factors be handled?
- Robust asset allocation and asset-liability models for public investors: How can portfolio construction and risk management models incorporate shifts in economic or financial regimes, as reflected through increasing interest rates or higher inflation? How can public investors, including central banks, incorporate prospective liability considerations into strategic asset allocation? How may discount rate models address the lower interest rate environment and the uncertainty surrounding the future path of interest rates? What steps have public pension plans and sovereign wealth funds taken to address ongoing demographic trends?
- Emerging technologies and their application to portfolio construction as well as investment and risk management: How can new technologies, such as artificial intelligence, including machine learning, be applied to portfolio construction, risk management and other areas of relevance to public investors?