Aon Hewitt
Retirement and Investment
Global Investment Beliefs
June 2015
Risk. Reinsurance. Human Resources.
Global Investment Beliefs
Aon Hewitt’s global investment beliefs represent our overarching
investment philosophy. They describe how we believe
institutional investors should pursue portfolio development
and construction. Our beliefs are based on sound investment
theory and the insights we have gleaned from working with
sophisticated institutional investors around the world.
We believe maintaining a clear and concise set of investment
beliefs is important for the following reasons:
•They unify our global investment advice while allowing for
local implementation.
•They promote a consistent approach for portfolio construction
and decision making.
•They communicate our core views to clients.
•They establish a roadmap for future research, inform how we
structure our practice, and guide the development of internal
and external tools and solutions.
Aon Hewitt’s investment consulting colleagues work in close
partnerships with their clients to solve complex investment
problems in practical, cost-effective ways within the framework
of our investment beliefs.
Aon Hewitt’s Global Investment Committee, which comprises
10 senior investment professionals representing the Americas,
EMEA, and APAC regions, develops and modifies the firm’s
global investment beliefs. The investment beliefs are reviewed
and updated as needed, but at least annually. Our investment
beliefs are as follows.
Effective governance is a necessary condition for
investment success.
Effective governance includes the
application of the concepts of fairness,
compliance with legal requirements,
accountability, transparency, efficacy
of actions, and efficiency. We believe
that all of these are necessary—though
not all-inclusive—conditions for lasting
investment success, and as such we
promote them in our actions and our
advice to clients.
authority requisite to act effectively
and in a timely manner (whether the
resources and authority are possessed
within the client’s organization or
delegated to a third party in a particular
area) are requirements for effectively
governed institutions. A focus on
improving outcomes delivers superior
results and encourages differentiated
approaches to investments.
The appropriate resources in terms
of knowledge and skill, as well as the
decision-making framework and
Our investment solutions are customized to client
circumstances, objectives, and risk tolerance.
Our views on the relative merits of
investment strategies are consistent
across clients. However, our diverse
client base exhibits a wide variety of
characteristics owing to clients’
differences in governance objectives;
circumstances; type of institution; time
horizon; portfolio size; geographic
location; environmental, social, and
governance (ESG) investment concerns;
and other factors. Therefore, a particular
strategy that may be optimal for one
client may be inappropriate
for another.
In advising clients, we take into account
their individual circumstances, goals,
and risk tolerances, and present
investment strategies in a way that is
relevant to maximizing reward and
minimizing risk for their particular
investment program.
Clients who access the full global opportunity set improve
outcomes through enhanced portfolio diversification
and efficiency.
The world market portfolio represents
the aggregate views of global investors
and should serve as a starting point
for clients designing a long-term
investment policy—subject to risk
tolerance, time horizon, liquidity
constraints, and other considerations.
Careful diversification into a broad set
of asset classes with attractive risk and
return properties improves portfolio
efficiency by reducing risk and
increasing return potential. Within asset
classes, we advise using the broadest
measure of the opportunity set as the
benchmark portfolio to maximize
diversification and opportunity. The
opportunity set in an asset class should
be viewed holistically and not restricted
to “traditional” sectors. For example,
“fixed income” includes bank loans,
emerging market debt, and credit;
“equities” includes private equity and
long-short strategies. We believe the
portfolio should be viewed through
multiple analytical perspectives
such that common risk and return
drivers across the portfolio are
measured and managed.
Prevailing market conditions and outlook should influence
portfolio construction in the long and medium term; no single
investment strategy is ideal in all market conditions.
Our risk and return expectations for the
global capital markets vary through
time, reflecting market movements and
current economic conditions while
maintaining a focus on the long term.
Specifically, the rewards for taking
different types of market risk, such as
equity risk, are more attractive in some
market environments than others.
Therefore, we advise clients to set
long-term investment policy using
current market expectations as an
input, and revise those policies when
warranted by changing conditions.
Additionally, we maintain medium-term
views that complement our long-term
expectations; using these views, we
advise clients on determining the
timing of long-term investment strategy
changes, rebalancing decisions,
adjusting market exposure hedges, and
managing opportunistic mandates.
Success with active management requires strong conviction
on the part of the investor, based on robust research.
This is best expressed through a
significant allocation to alternative
investments and highly active
traditional portfolios typically operating
with broad, unconstrained mandates.
For clients that choose to minimize complexity or cost,
passive traditional portfolios offer efficient capture
of market returns.
The “arithmetic of active management”—
the observation that active and passive
management together comprise the
total market, that active and passive
managers in aggregate must therefore
underperform the total market by the
amount of their investment costs, and
that active management fees and
trading costs are significantly higher
than those of passive—shows that
success with active management
depends on the ability to identify
superior (skilled), not average,
active managers.
We recommend active strategies only
when we believe we can identify
and implement active opportunities
that are attractive relative to a low-cost
passive approach.
We believe that there are ways in which
clients can further improve their
probability of success with active
management. One approach is the
removal of constraints on active
management, in particular by
employing broader mandates such
as active global equity.
While constraints on active managers
may reduce some risks and help enforce
style purity, when managers are
skillful in implementing a strategy,
constraining them from fully employing
that strategy reduces the potential for
value added. Broadening mandates,
on the other hand, allows managers
to select the most attractive
investments regardless of style, within
appropriate active risk limits.
Additionally, alternative investment
strategies such as hedge funds, private
equity, and non-core private real estate
offer an efficient approach to active
risk taking, owing to their breadth and
flexibility, and as such we recommend
that clients able to tolerate the
associated risks allocate a significant
portion of their total portfolio risk
to these areas.
Contact
Mike Sebastian
Partner and Chair,
Global Investment Committee
Aon Center for Innovation and
Analytics (ACIA), Singapore
+65 9172 2424 mobile
+65 6645 0122 office
[email protected]
About Aon
Aon plc (NYSE:AON) is the leading global provider
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© Aon plc 2015. All rights reserved.
The information contained herein and the statements expressed are of
a general nature and are not intended to address the circumstances of
any particular individual or entity. Although we endeavor to provide
accurate and timely information and use sources we consider reliable,
there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future.
No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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