Politicizing the Portfolio
Could government infrastructure assets help shore up ailing pension systems?Connecticut, for one, is exploring this possibility. The idea goes like this: In lieu of cash, the state would donate real assets such as office buildings and highways to the pension system. Transferring the assets would immediately lower pension liabilities, particularly since many of these properties have been on the books for years and would see their worth skyrocket as they’re revalued at current market rates. The pension system could boost the value of these assets even further by leveraging public-private partnerships to monetize them, potentially improving long-term infrastructure maintenance in the process. Helping state and local leaders apply this sort of creative thinking to unfunded pension liabilities — a huge and growing challenge — is a prime opportunity for financial firms, advisory firms and others.
Governments also will need help navigating another layer of pension complexity: The growing popularity of ESG investing. For an increasing number of pension systems, environmental, social and governance factors play a larger role in investment strategy. Although the notion of ESG investing has been around since at least the 1980s, it’s getting more attention as pension funds become more politicized and sustainably minded millennial and Generation X investors enter the financial markets. Many governments have positioned themselves as good ESG investments, but as our in-depth look at this issue points out, public officials still must ensure pension plans do well while they increasingly strive to do good — and they’ll probably need top-notch investment and financial advice to do it. To continue the full article, click here.
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