NYSCRF’s impact fund mitigates inflation with credit and real assets

New York State Common Retirement Fund has been making infrastructure, credit and affordable housing investments from its $20 billion-target impact allocation to mitigate inflation and diversify its portfolio, according to the allocation’s director Andrew Siwo. Investments from the fund’s multi-asset-class Sustainable Investments and Climate Solutions allocation are judged by “how accretive they are to the pension fund”, Siwo told delegates at PEI Group’s Responsible Investment Forum in New York yesterday.

“It is imperative that each investment that comes to a positive outcome has won the appeal and met the risk/return characteristics of an asset class team,” Siwo added. “We have a uniform underwriting approach across a multi-asset class portfolio – which is a key to our success.” The SICS portfolio has grown from $8 billion to over $18 billion since 2019, said Siwo.

Siwo is among New Private Markets’ list of eight people who will shape sustainability in private markets this year, in part due to the SICS allocation’s ability to write large cheque sizes for impact. Last year, NYSCRF made a $750 million commitment to Brookfield’s energy transition fund – the largest external investment to an impact fund on record. The investment was made out of NYSCRF’s real assets bucket. Other impact investments include $150 million to the Apollo Impact Mission Fund in December 2021 and $300 million to KKR’s Global Impact Fund in 2018.

“A tip for managers is to lead with an investment thesis and be able to articulate the investment process and a manager’s edge. For example, portfolio managers should be able to illustrate how E, S and G factors are assessed, among other investment risks and opportunities,” said Siwo. “Asset owners have become more sophisticated, and regulation of sustainable investment products is underway. Consequently, asset managers will need to be more proximate to their investment thesis in relation to the fund classifications that have been promulgated by regulators.”

Despite a number of funds downgraded from Article 9 to Article 8 or 6 last year, particularly in listed markets, “there is nothing wrong with being a good Article 6… or 8 fund that generates alpha [returns]”, said Siwo.

On sustainability issues in private markets beyond NYSCRF’s impact allocation, Siwo said: “Reporting is a critical component to sustainable investments and there are several service providers that have been helpful to fund managers. Consolidation of frameworks, and the widespread adoption to a framework that is suitable, is an ongoing task that managers face.

“‘Measure what matters’ is a mantra that is often recommended for impact investments, which highlights the challenge to creating a uniform measurement framework. “Measurement and reporting will become even more important following the release of regulatory guidelines and increased monitoring of a manager’s ‘do-say’ ratio, which essentially compares a manager’s stated investment process to its actual investment process.”

This article has been amended to reflect that Andrew Siwo meant to say that asset owners, rather than managers, have become more sophisticated.