Some asset managers own so much of the market that they should consider it a responsibility to engage in activist investing, according to new research from Willis Towers Watson.
The world’s 100 largest asset owners account for around $19 trillion, or about 35 percent of capital held by all asset owners globally, Willis Towers Watson's Thinking Ahead Institute said in a study expected to be released Monday. The goal of these universal asset owners should be to use their stewardship to influence the economic system, according to Roger Urwin, global head of investment content at investment advisory services firm Willis Towers Watson.
“They are large long-term holders of index-like portfolios,” Urwin said Thursday by phone. “They are so big that it’s very difficult to hold concentrated portfolios. They have to hold a slice of everything, so they are exposed to the entire market and entire economy.”
Examples of these "universal owners" are Japan’s Government Pension Investment Fund, with $1.44 trillion under management; the Government Pension Fund of Norway, with $1.063 trillion assets; and Dutch pension fund APG, which manages $564 billion, according to Willis Towers Watson.
In being universal owners, they should acknowledge that their investment decisions affect the world beyond their portfolios, and that there are both responsibilities and opportunities that come along with that, according to Willis Towers Watson.
For instance, Norway’s pension fund has made exclusions to the types of companies it will hold, Urwin said. The fund excludes investments in tobacco, coal, and nuclear weapons companies, the Norges Bank Investment Management's website shows. Urwin noted that he expects that more universal asset owners will wield their power through such screening.
“They could just take economic advantage of the market as a free rider, as it were, or they could do more to protect themselves and to manage their risk,” he said. “The returns universal owners need will only come from systems that work.”
In other words, universal asset owners only benefit if the whole system works, so they are becoming committed to doing the work that ensures the financial system, and the companies they hold, are functioning appropriately.
“It’s about stewardship of their portfolios,” Urwin said. "Universal owners are exercising a high degree of responsibility in the way they operate."