The University of Helsinki Research Foundation (hereafter “Foundation”) promotes and supports the research work of young scholars from the University of Helsinki (hereafter “University”) by funding their employment in designated doctoral student positions. The Foundation’s assets origin largely from donations from more than 200 companies and public sector organizations, and currently amount to approximately 35 million Euros.
In 2020, we adopted our current investment strategy for financial securities portfolio, which brought its risk and return targets up to their current levels, where we expect a 4% average annual real return over the long run. By the end of December 2024, our portfolio’s market value was 46 million Euros, and its average return since January 2020 equaled 9.6% per annum.
The purpose of this document is to lay out an Investment Plan that outlines how we intend to operationalize our Principles for Responsible Investment Activities in years 2025—29. The future (development of the financial markets) is however inherently uncertain, whereby the execution of the Investment Plan must continuously be adapted to new information and conditions. Hence, an important part of Investment Plan is to present the underlying approach that govern any future adaptations to known, as well as unknown, unknowns.
Our approach to investments builds on the central values that guide the University of Helsinki overall; truth, bildung, freedom and inclusivity. To us, truth and bildung requires accepting scientific findings, even when they are inconvenient. Freedom and inclusivity are reflected primarily by our ambition to support equality and social development with our investments.
Market efficiency is one of the most thoroughly tested hypotheses in financial economics. Countless peer-reviewed scientific publications have examined it from different perspectives, including active investment management performance. We acknowledge and accept the concept of market efficiency. To be more precise, we believe in the concept of equilibrium market efficiency, which states that markets cannot be fully informationally efficient, as active investors need an incentive to perform costly information gathering. Index investors become active when expected rewards exceed information costs – and vice versa – whereby market efficiency is an equilibrium of disequilibria. Empirical evidence however implies that the market has been “overly” efficient – or that too much capital has been managed actively. In other words, the performance of indices has been better than average active investment management. While past (under)performance is no guarantee for future (under)performance, we prefer index investment management – given that we have no information advantage or other special preference.
Finally, we recognize our exposure to environmental, social and governance (ESG) related uncertainty. Consequently, we seek to manage these uncertainties for ourselves, our partners, society, and sustainable development at large. For example, we strive to achieve a net carbon neutral portfolio by the year 2030, honor the principle of public access to information by reporting about our progress, and seek positive impact (primarily) through our unlisted investments.
In summary, cost-efficient index funds that mitigate ESG related uncertainty are the bedrock of our securities investments.
Change is perhaps the only thing we can safely assume about the future. While shocks might set us back over the shorter term, development will hopefully propel us forward over the long run.
As we have a practically perpetual investment horizon, we should probably invest mostly into equity shares of value-creating companies. Our Principles for Responsible Investment Activities however require us to maintain a reasonable allocation to low credit risk bonds, to reduce shorter-term volatility and enable a steady spending policy. We increased our allocation to equities in 2020 with the introduction of the current investment strategy and continue evaluating whether and when gradually increased allocation to equities could be warranted.
Our Principles for Responsible Investment Activities define our benchmark index as 70% global equities (with currency risk) and 30% global bonds (currency risk hedged to Euro). The same principles furthermore set the following boundaries for our allocation:
| Principles for Responsible Investment Activities | Actual December 2024 | |
|---|---|---|
| Listed equities | 60-80% | 80.2% |
| Listed bonds | 0-40% | 19.7% |
| Other (including cash) | 0-40% | 0.1% |
We monitor our investments against these boundaries at least monthly but refrain from rebalancing unless necessary, to minimize trading costs. We primarily rebalance with new cash inflows, when we can achieve it at zero marginal cost.
Our exchange listed stock weight stood at 80% as of December 2024, and we are required to maintain it between 60-80 % by our Principles for Responsible Investment Activities. Our benchmark for listed stocks is the global MSCI ACWI Net Total Return EUR Index, which covers approximately 85% of the free float-adjusted market capitalization in both developed and emerging markets. As we have relatively recently allocated capital to our current equity funds, we expect to continue engaging with them in 2025—29, conditional on their continued suitability and competitiveness.
We have excluded fossil fuel producing companies from our equity fund investments, which has effectively halved their carbon emissions. However, our target is to become net carbon neutral by 2030, in tandem with the University of Helsinki itself. It seems probable that reducing our investments’ gross carbon emissions to zero will simply not be feasible by 2030, given our fiduciary requirements, and the de-facto structure of the economy. Hence, again in line with the University of Helsinki, we will probably need to compensate for our investments’ carbon emissions to reach (net) neutrality. Currently, the cost of properly compensating our investments’ carbon emissions, for instance by buying and maculating EU Carbon Permits, would impose a notable drag on our expected return.[1] The looming compensation costs obviously constitute financial incentives to further reduce our investments’ gross carbon emissions, however constrained by our other investment parameters.
Our listed bond allocation was 20% as of September 2024. Our fixed income comparison index is the Bloomberg Barclays Global Aggregate Float Adjusted TR Index Hedged EUR. It reflects global treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging local currency markets. As we primarily seek interest rate risk through listed bonds – not corporate risk – we have allocated approximately 1/2 into global government bonds. However, we have also allocated 1/2 into high environmental impact green bonds. In 2025—29, we expect to continue holding our current fixed income funds, while keeping an open mind to opportunities.
[1] Approximately 200 thousand Euros or 0.4% per annum, assuming 51 tons CO2-eq per million Euros invested for equity funds (Source: SEB Impact Metric Tool, December 2023), 66 Euros per ton (Source: https://tradingeconomics.com/commodity/carbon, 20 October 2024), and an equivalent carbon footprint for other investments.
We control external governance uncertainties by limiting each counterparty to 25 % of the portfolio. However, we simultaneously strive to invest a meaningful sum with each fund manager, to achieve competitive management fees and other terms. We manage liquidity uncertainty by investing primarily into relatively large investment funds that invest in liquid listed stocks and bonds. We furthermore diversify our counterparty exposure geographically. We leave currency risk open for stocks – where it represents a smaller fraction of total risk – but primarily hedge it for bonds. Finally, we manage ESG uncertainty through monitoring, exclusions, engagement and impact investments. We seek to develop our ESG uncertainty management by establishing applicable biodiversity monitoring indicators, and subsequently introducing relevant targets and taking appropriate action.
The expected annual volatility of the portfolio returns is below 20 %. The estimate is conditional on both method and timeframe, and includes considerable uncertainty. Assuming a 20 % annual volatility, one year Value at Risk 97.5 % is approximately -40% or -20 million Euros (as of December 2024). Hence, we expect such an annual drawdown – or worse – in one year out of forty. Accounting for, e.g. historically fat-tailed return distributions, or kurtosis, the actual Value at Risk is probably larger.
An inconvenient fact is that we do not and cannot know how much larger beforehand, as it is connected to uncertainty – sometimes referred to as Black Swans. E.g., geopolitical uncertainties seem to continue increasing rapidly, and we seek to manage them by stressing geographical diversification, liquidity, and counterparty risks.
We manage internal governance uncertainty by following a segregated operating model, which separates investment research, decisions, and monitoring: