Business Model and Operating Model

agent-based models: An agent-based model simulates the actions and interactions of agents in the financial ecosystem to assess trends in the system as a whole and the effects on its various participants. The method employs various disciplines including game theory, complexity science, and behavioral economics, as well as significant computing power, to deal with multiple combinations and higher-order consequences. Example: The Bank of England uses agent-based models of corporate bonds and housing in its macro-prudential oversight to build greater understanding of system stresses and for exploring the consequences of policy actions.

blockchain: Blockchain is a continuously growing database linked and secured using specialized technology to record transactions, property rights, and/or contracts between two parties efficiently and in a verifiable and permanent way. Examples: Cryptocurrencies; tokenization to streamline private equity ownership.

machine learning: Machine learning is a subset of artificial intelligence that uses statistical techniques to give computers the ability to learn valuable intelligence through providing it with data, without being explicitly programmed. Machine learning is a central part of portfolio selection and trading strategies for some quantitative investment processes.

integrated reporting: Integrated Reporting is a reporting style promoted to corporations to emphasize how value is created in the organization, generally by reference to narrative as well as data, and through consideration of how an organization’s strategy, governance, and resources contribute to the creation of value over different time horizons.

employee value proposition (EVP) and client value proposition (CVP): Integrated reporting includes narrative on how value is delivered to employees in the EVP through policies, actions, culture, and leadership that attract, retain, and develop employees and teams. The narrative on how value is delivered to clients is in the CVP through the organization’s policies and actions, culture, and leadership that deliver value to clients in all services and products.

soft data: Soft data are measures and assessments that can be qualitative or quantitative but are difficult to assess in terms of accuracy. They may involve extrapolation or estimation from population samples, or they may measure subjective topics. Soft data can nevertheless be extremely relevant and material in decision making. Examples include sentiment indicators, opinion polls, and platforms such as Glassdoor in which employees and former employees review companies’ cultures.

Investment Model

solutions products: Solutions products have a benchmark that is a specified target outcome (for example, achieving CPI + 4% per annum in a multi-asset mandate). They stand in contrast to components products, which map to mandates specific to an asset class where the index is the benchmark (for example, the MSCI All Country World Index for a global equity mandate) Examples of such products include: outsourced chief investment officer or fiduciary management; diversified growth; and other multi-asset, target-date, and LDI mandates.

outsourced chief investment officer (OCIO): OCIO arrangements (also referred to as fiduciary management) are investment platforms managed for asset owners by third-party investment organizations working under fiduciary responsibilities. An OCIO provides whole-fund discretionary fund management whereby the management scope is bespoke investment advice and strategies allied to implementation and maintenance, including liability and liquidity management, covenant consideration, and use of insurance.

total portfolio approach (TPA): TPA is an investment model for managing a whole fund in which there is a continuous and dynamic focus on the investment objective and the best single portfolio to achieve this objective by a single team working collaboratively by reference to desirable features: adherence to a risk budget; good risk–return trade-off; liquidity and flexibility; investing comparative advantage; resources; simplicity; cost; and sustainability. Example: “One team, one portfolio, combining a breadth of experience and skills into a collaborative whole creates a meaningful competitive advantage” (Future Fund Australia 2017).

goals-based investing: Goals-based investing involves adopting a stronger link between the explicit performance goals an end investor wishes to achieve (e.g., achieving a 4% per annum real return) and the investment strategy adopted to meet those goals.

universal owner: Universal owners are large, long-term investors that own a slice of the whole economy and the market. They aim to enhance their portfolios’ return prospects through work on the whole system (economy and market). This approach involves managing the value and utility of member wealth and integrates ESG and sustainability considerations. Example: “We operate as a Universal Owner. We have the inconvenient truth of modern portfolio theory: The more diversified we are, the more vulnerable we are to systematic failure, so we have to pay attention to how the whole portfolio system can be sustainable. It’s why we are paying attention to ESG” (GPIF Japan).

Sustainable Development Goals (SDGs): These 17 goals established by the United Nations Development Programme are meant to drive progress along key dimensions that are relevant for a “more sustainable, safer, more prosperous planet for all humanity.” They interconnect and offer a framework that governments, companies, and investors can use to measure impact. The goals include items such as education, healthcare, infrastructure, gender equality, and clean energy.

People Model

cognitive diversity: Cognitive diversity involves differences in perspective or information processing styles across how individuals think, particularly in the context of new, uncertain, and complex situations, which can potentially lead groups to better decision outcomes.

collective intelligence: Collective intelligence is intelligence shared across a group of people that emerges from the group’s collective efforts and utilized technology. It is derived from aggregating factors reflecting cognitive diversity and process as well as the individuals’ intelligence. Example: “The ability of groups to improve judgements of factual problems (such as guessing the number of marbles in a jar) is an example of collective intelligence through aggregating independent views” (Surowiecki 2004).

T-shaped people: The concept of T-shaped persons (and, by extension, T-shaped teams) describes the abilities of people to simultaneously have deep knowledge in a single field or part of the ecosystem (the vertical bar of the “T”) and have wider knowledge in other fields or other parts of the ecosystem (the horizontal bar of the “T”), as well as the competencies to connect the two. The term originated at the consulting firm McKinsey in the 1980s.