Risk-return space: a “modernist” review

After taking a detour last year on the Champs-Élisées, we return to our usual logistics for the 9th  InFormation Course, down the Ramblas in Barcelona. In the modernist architecture that characterises this splendid city, we have tried to find inspiration to interpret the increasingly convoluted relationship between yield and risk in the management of institutional  portfolios.

How to re-draw the “mythical” efficient frontier, in a situation where the “risk free” is also “return free”?!  “The straight line belongs to man, the curved one to God,” said Gaudì: indeed, the efficient frontier of the “new normal” seems to be in the hands of Our Lord…

As usual, we gave plenty of opportunities to our large audience to express ideas and clarify doubts, because it is precisely when “the going gets tough” that the frank dialogue between investors, advisers and asset managers becomes essential.

This special issue of Anteo brings you, as usual, the summary of the presentations from the two-day plenary session.

Like the Catalans with their Sagrada Famìlia, every year we add something extra to the already full programme of our InFormation Courses. In 2014 we introduced multiple-choice questions during round tables: these were a success and have been permanently added to the programme. This year we added a new session for health care funds, as their increasing importance has made clear the need to set “rules of the game” and to define best practices. This session will not be “parallel”, that is, simultaneous to the others, to enable the many representatives of Pension Funds and Social Security Funds who also deal with health care issues (either because of their roles or simply out of personal interest) to take part.

We have been working even harder! We believe it was worthwhile, as it is precisely in this period of limited resources, when social security/health care/insurance funds are wrongly identified by lawmakers with “speculation”, that it is necessary to develop an integrative welfare system of significant size and impeccable transparency and efficiency. Social security and health care are an inseparable combination for a type of supplementary welfare in which privates must necessarily replace a public sector in rapid retreat, although this does not mean to be able to dispense with the collective forms of welfare and the constitutional principle of solidarity, within and across generations.

The Casse di previdenza e assistenza, the retirement funds for professional categories, provide many examples of this virtuous marriage with the mandatory contributions of the first pillar, a useful benchmark to provide a return not just financial to the voluntary contributions of the second pillar, perhaps offering a first opportunity for an associative approach to the insurance market.

This will be the approach that we propose to health care funds, aiming from the very beginning to encourage the debate with those in charge of regulating their governance and financial management, as it has already happened to their social security “cousins”. The “session” of Barcelona has been only the beginning of the work that Prometeia Advisor is planning to carry out with health care fund representatives and with the public agencies that will regulate and supervise them: in the next few days we will take part in the presentation of the “Study on health care funds and mutual assistance organisations: first sectoral results”, by the University of Rome Bio-medical Campus and by Valore Srl (which gave us a preview in Barcelona).

Besides organising its InFormation Courses, Prometeia Advisor is constantly trying to extend the range and quality of the services it offers to an increasing number of institutional investors (now approaching 70!). Besides the usual investment on human capital, methodologies and applications, since May 2015 we subscribe to the United Nations Principles for Responsible Investment (UNPRI), confirming the commitment of the Prometeia Group to the issue of social and environmental responsibility in the management of the investments. All our consultants are able to base their activity, and that of the investors they support, on a few clear principles shared globally by around 1,400 institutions from all over the world (of which 14 are Italian), for several billion dollars of proprietary or managed assets.

The 6 principles are stated as follows: 

 
  1. to incorporate ESG (environmental, social, and corporate governance) issues into investment analysis and decision-making processes concerning investments
  2. to be active owners and incorporate ESG issues into our ownership policies and practices
  3. to seek appropriate disclosure on ESG issues by the companies in which we invest
  4. to promote the acceptance and the implementation of the Principles in the financial sector 
  5. to co-operate to enhance our effectiveness in implementing the Principles
  6. to regularly report on our activities and progress towards implementing the Principles

We are the sole Italian advisor abiding to these principles, and we also believe that this type of support in the governance of investment processes, even more than in the choice of the instruments, must be more and more a distinguishing characteristic of our activity: we believe, in fact, that everyone must increasingly focus on the social, environmental and economic impact of the companies that generate the returns.