There is a gulf between perception and reality of risk exposures by investment teams and committees, according to Roger McIntosh, head of investments at the Labour Union Co-operative Retirement Fund (LUCRF).
Such lack of accurate insight into funds’ exposures has led him to introduce a risk assessment tool, MSCI’s Barra One, which is also being used by Hesta, VFMC and Cbus.
“It provides insights that super funds in general need, but don’t have,” said McIntosh, who was accustomed to using such analysis in his former role with Vanguard. “It is improving the knowledge of the team and investment committee about what exposures we’ve really got.”
The analysis, he said, brought better conversations about marginal risk and the implications of moving money from one manager to another.
One of the main benefits of the tool is what McIntosh calls “factor indexes” which allow investment teams to single out macro or micro economic or industry-specific factors they want their portfolio exposed to, but may not receive from their existing managers.
McIntosh sees the regular and automated reporting as a way to satisfy greater regulatory oversight, as well as growing fiduciary scrutiny from boards and investment committees.
“It gives the investment committee comfort that they can see the risks embedded, and they’re for the right reason rather than a result of unintended bets or exposures,” he says.