We have just released the results of a groundbreaking effort to find out (and quantify) whether pursuing high governance and sustainability standards yields indeed better financial returns for SWFs and PPFs.
In particular, the analysis looked at the correlation between two set of variables:
Set A: Financial performance of the funds for the past six fiscal exercises (“FY15” to “FY20”). Funds report their financial results in very different ways, and when possible, we have considered returns on a net-of-fees basis, in nominal terms and in the fund’s currency basket. There are also some differences in cut-off dates, as certain funds report on March 31 (CPP, GIC or Temasek), on June 30 (NZ Super, Future Fund or Alaska), August 31 (Texas funds) or September 30 (T&T). We analyzed all Top 100 funds and found reliable annual figures for 58 of them.
Set B: GSR (Governance, Sustainability and Resilience) score as defined in our latest GSR assessment as of July 1, 2020 (link), and as studied by Ted Truman’s latest scoreboard (link). This was studied for all Top 100 funds and will be updated again on July 1, 2021.
We found a “moderate positive relationship”, with a correlation coefficient of 0.52, between the two sets. In other words, those funds that do not look after proper governance and sustainability, do not generally perform very well. This is true for ADIA, GIC and Khazanah and could also be the case for KIA, OIA and QIA, but we were unable to estimate their returns.
There are some exceptions, as CIC, KIC and PIF have managed to perform well despite having lower-than-average GSRs. On the flip side, funds like ISIF, GPIF and Temasek have high GSR standards but show lower-than-average financial returns.
Finally, there are no surprises in the “best in class” category. NZ Super, Future Fund and NBIM lead the SWF pack, while AP Funds, CPP and CDPQ show the way for pension management.
When it comes to State-Owned Investors, doing good is good for business.