GLOBAL, August 1, 2024 – New research from the Thinking Ahead Institute in partnership with the Future Fund, the Australian sovereign wealth fund, shows a growing awareness among the world’s largest investment organisations of ‘systemic risks’ and a preparedness to address these risks through sustainability measures and whole of fund thinking.
As of 2024 the new analysis shows that 88% of the world’s largest investment teams now expect systemic risks will grow in incidence and size.
The 26 funds in the peer group for this study were selected for their strong governance, significant size, and thoughtful international perspectives. Together the group represents over US$6tn of extremely influential capital.
Examples of systemic risks include (1) geopolitical confrontation identified as a ‘top three’ concern by 84% of respondents, (2) climate change, where 72% are concerned about escalation, and (3) inequality and social challenges, including polarisation and the erosion of social cohesion (48% concerned).
Other notable concerns include the robustness of the financial system, biodiversity loss, cybercrime and the impact of AI and other frontier technologies.
Roger Urwin, co-founder of the Thinking Ahead Institute, comments on the new findings: “There is a rocky road ahead for asset owners. All investors should prepare for a bumpier ride by building more resilience into their organisation – thinking ahead, more agile organisational design, better culture and stronger risk frameworks will all play their part.
“All investors should prepare for a bumpier ride by building more resilience into their organisation – thinking ahead, more agile organisational design, better culture and stronger risk frameworks.”
Roger Urwin | co-founder of the Thinking Ahead Institute
“Facing such global challenges, the structures and teams across the investment world need to be rethought. It has been a pleasure to produce this report with the commitment and considerable C-suite time from these 26 exemplar organisations.
“Organisational design and how organisations are run will be one of the main drivers of investment ‘alpha’ in this portion of the twenty first century.”
With a growing variety of external factors, opportunities and threats, 73% of investment organisations now say managing complexity is a top concern.
Turning to potential ways to mitigate and manage such risks and complexity, technology adoption is seen as important but is not yet a mature priority. Nearly two-fifths (38%) view artificial intelligence and machine learning (AI/ML) as integral to their future strategic direction as an investment organisation.
But half of these global investment organisations (46%) report experiencing difficulties in maintaining a cohesive approach to technology implementation. Moreover, only 27% have markedly increased their technology spending in the past five years.
Seemingly ‘softer’ issues around people have emerged as a key factor for today’s largest investment organisations with 65% now saying the attraction and retention of talent is a top three issue. The issues discussed in detail in the full report include culture, governance, teams and leadership and how these interact within any organisation aiming to succeed in the world context of growing complexity.
Conversations during the production of the new report have coalesced around the concept of ‘systems thinking’. The ‘system’ is defined as ‘a collection of elements that are inter-connected and fulfil a certain purpose or function’. ‘Systems thinking’ is using understanding of the system like the investment industry or an individual asset owner to explain trends and develop solutions that work holistically.
The new report presents the concepts of total portfolio approaches (TPA – whole of fund management) and 3D investing (optimising risk, return and real-world impact) as system thinking applications to investment processes. Currently, 35% of the organisations in the study have adopted TPA, with a further 54% moving in that direction. And 65% embrace 3D investing.
The full report is available in summary form online.
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and asset managers committed to mobilising capital for a sustainable future. It has 52 members around the world and is an outgrowth of the WTW Investments’ Thinking Ahead Group which was set up in 2002. Learn more at thinkingaheadinstitute
At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.
Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.
The Future Fund is Australia’s sovereign wealth fund. As an intergenerational fund, its purpose is to invest for the benefit of future generations of Australians and its role is to generate high, risk adjusted returns over the long-term.
Established in 2006 to strengthen the Commonwealth of Australia’s long-term financial position, today at over AU$223 billion the Future Fund is the Australian Government’s single largest financial asset.
On behalf of the Australian Federal Government the organisation also invests the assets of six additional special purpose public asset funds collectively valued at over AU$61 billion: the Medical Research Future Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund, the Future Drought Fund, the Disaster Ready Fund, the DisabilityCare Australia Fund and the Housing Australia Future Fund.
As a global investment institution the Future Fund operates independently from government and tailors the management of each fund to its unique investment mandate.
Further information: futurefund
