Since taking office in July, UK Prime Minister Andy Burnham has outlined a broad economic agenda focused on infrastructure investment, reindustrialization and regional development. While the government’s comprehensive 10-year plan is expected later this year, the 28 October Autumn Budget will provide the first meaningful indication of funding commitments and implementation timelines.

Among social care and pension reforms, much has been said about infrastructure and growth, with a 10-year plan for greater investment, reindustrialization and regional growth.

The Burnham government has outlined an ambitious multi-year infrastructure programme, anchored by the 10-Year Infrastructure Strategy published in June 2025 and the Spending Review covering 2026–2030. The 10-Year Infrastructure Strategy commits £725 billion in capital funding for economic and social infrastructure over the next decade. The UK Infrastructure Pipeline details more than 700 planned projects.

To gain exposure to UK infrastructure spend, Global Alpha recently initiated a position in Balfour Beatty PLC (BBY LN), an international infrastructure group operating across construction, engineering and asset management.

Balfour Beatty operates through three segments:

1. construction services – physical construction of assets including buildings, highways, rail and power generation,
2. support services – maintenance, refurbishment and upgrade of existing infrastructure, including power transmission and distribution, and
3. infrastructure investments – acquisition, operation and disposal of infrastructure assets.

Revenue is generated primarily through long-term public-sector framework contracts and project-based work, with revenue from the UK and North America evenly split, and a joint venture in Hong Kong contributing the remaining 9% of sales.

The company’s competitive advantages include its scale, technical expertise in complex infrastructure markets and a growing order book that provides multi-year revenue visibility. Importantly, its core end markets align closely with areas expected to receive the largest share of future infrastructure investment.

Energy and power transmission

In UK energy, Balfour Beatty has a 25% market share in the UK power transmission market. Ofgem, the UK’s regulatory body supervising the operation of the gas and electricity industry, has already announced an investment to upgrade power and gas grids that will increase to an estimated £90 billion by 2031. The approved investment will fund 80 transmission projects, such as new power lines, substations and other technologies, over that period. Balfour Beatty is also heavily involved in projects such as the new nuclear power stations at Hinkley Point C and Sizewell C, the Net Zero Teesside power station with carbon capture.

National security and defence

Regarding UK defence, Balfour Beatty has a strong track record and existing footprint in complex, high security and nuclear environments. The UK has committed to increasing defence spending to 3.5% of GDP by 2035 as part of the Defense Investment Plan. Defence is seen as a growth engine in the UK, turning national security into a direct driver of economic productivity. UK capability, security clearance and ringfenced IT systems will be prioritized, a positive for Balfour Beatty. The new CFO has extensive experience in the defence industry, having come from BAE Systems, the largest defence contractor in Europe.

Transportation

Investment in the UK transport network is an important component of the government’s growth plans and is essential to address aging infrastructure, net zero targets and domestic and international connectivity. Given Balfour Beatty’s capabilities in the construction and maintenance of road and rail, and its experience in delivering major airport projects, the company is well positioned to capitalize on transport opportunities when they arise, with growth expected in the medium term.

US data centre projects

Across the pond in US buildings, Balfour Beatty is well positioned in strong growth states and sectors. Balfour Beatty is targeting aviation and data centres, growing sectors which align with the company’s expertise. Aviation estimated to be a $140 billion construction market from 2026 to 2029. The company has a good track record, currently delivering a range of projects at seven airports. Data centres are estimated to be a $250 billion market over that period. Balfour Beatty has been active in data centre construction for around 20 years, delivering around 80 data centres in the Northwest region, and is leveraging existing relationships to expand its US footprint.

Risk, catalyst and the path ahead

Execution risk is always a concern with contractors, but the UK public infrastructure procurement environment has undergone significant transformation over the past decade, driven by a government focus on better delivery and stability. Structural improvements have led to a more balanced risk profile between customer and contractor: the adoption of collaborative cost models, prevalence of frameworks as a standard procurement route, early contractor involvement, and increased weighting of non-financial criteria in bidding.

The UK’s Autumn Budget represents the key near-term catalyst for the investment thesis. It should provide greater clarity on the government’s infrastructure spending commitments, funding mechanisms and implementation timetable. While fiscal constraints remain a risk, Balfour Beatty’s exposure to energy transmission, defence, transport and selected US growth markets positions the company to benefit if planned investment levels materialize.

The post Building momentum via a versatile investment appeared first on Groupe financier Connor, Clark & Lunn ltée.

Since taking office in July, UK Prime Minister Andy Burnham has outlined a broad economic agenda focused on infrastructure investment, reindustrialization and regional development. While the government’s comprehensive 10-year plan is expected later this year, the 28 October Autumn Budget will provide the first meaningful indication of funding commitments and implementation timelines.

Among social care and pension reforms, much has been said about infrastructure and growth, with a 10-year plan for greater investment, reindustrialization and regional growth.

The Burnham government has outlined an ambitious multi-year infrastructure programme, anchored by the 10-Year Infrastructure Strategy published in June 2025 and the Spending Review covering 2026–2030. The 10-Year Infrastructure Strategy commits £725 billion in capital funding for economic and social infrastructure over the next decade. The UK Infrastructure Pipeline details more than 700 planned projects.

To gain exposure to UK infrastructure spend, Global Alpha recently initiated a position in Balfour Beatty PLC (BBY LN), an international infrastructure group operating across construction, engineering and asset management.

Balfour Beatty operates through three segments:

1. construction services – physical construction of assets including buildings, highways, rail and power generation,
2. support services – maintenance, refurbishment and upgrade of existing infrastructure, including power transmission and distribution, and
3. infrastructure investments – acquisition, operation and disposal of infrastructure assets.

Revenue is generated primarily through long-term public-sector framework contracts and project-based work, with revenue from the UK and North America evenly split, and a joint venture in Hong Kong contributing the remaining 9% of sales.

The company’s competitive advantages include its scale, technical expertise in complex infrastructure markets and a growing order book that provides multi-year revenue visibility. Importantly, its core end markets align closely with areas expected to receive the largest share of future infrastructure investment.

Energy and power transmission

In UK energy, Balfour Beatty has a 25% market share in the UK power transmission market. Ofgem, the UK’s regulatory body supervising the operation of the gas and electricity industry, has already announced an investment to upgrade power and gas grids that will increase to an estimated £90 billion by 2031. The approved investment will fund 80 transmission projects, such as new power lines, substations and other technologies, over that period. Balfour Beatty is also heavily involved in projects such as the new nuclear power stations at Hinkley Point C and Sizewell C, the Net Zero Teesside power station with carbon capture.

National security and defence

Regarding UK defence, Balfour Beatty has a strong track record and existing footprint in complex, high security and nuclear environments. The UK has committed to increasing defence spending to 3.5% of GDP by 2035 as part of the Defense Investment Plan. Defence is seen as a growth engine in the UK, turning national security into a direct driver of economic productivity. UK capability, security clearance and ringfenced IT systems will be prioritized, a positive for Balfour Beatty. The new CFO has extensive experience in the defence industry, having come from BAE Systems, the largest defence contractor in Europe.

Transportation

Investment in the UK transport network is an important component of the government’s growth plans and is essential to address aging infrastructure, net zero targets and domestic and international connectivity. Given Balfour Beatty’s capabilities in the construction and maintenance of road and rail, and its experience in delivering major airport projects, the company is well positioned to capitalize on transport opportunities when they arise, with growth expected in the medium term.

US data centre projects

Across the pond in US buildings, Balfour Beatty is well positioned in strong growth states and sectors. Balfour Beatty is targeting aviation and data centres, growing sectors which align with the company’s expertise. Aviation estimated to be a $140 billion construction market from 2026 to 2029. The company has a good track record, currently delivering a range of projects at seven airports. Data centres are estimated to be a $250 billion market over that period. Balfour Beatty has been active in data centre construction for around 20 years, delivering around 80 data centres in the Northwest region, and is leveraging existing relationships to expand its US footprint.

Risk, catalyst and the path ahead

Execution risk is always a concern with contractors, but the UK public infrastructure procurement environment has undergone significant transformation over the past decade, driven by a government focus on better delivery and stability. Structural improvements have led to a more balanced risk profile between customer and contractor: the adoption of collaborative cost models, prevalence of frameworks as a standard procurement route, early contractor involvement, and increased weighting of non-financial criteria in bidding.

The UK’s Autumn Budget represents the key near-term catalyst for the investment thesis. It should provide greater clarity on the government’s infrastructure spending commitments, funding mechanisms and implementation timetable. While fiscal constraints remain a risk, Balfour Beatty’s exposure to energy transmission, defence, transport and selected US growth markets positions the company to benefit if planned investment levels materialize.

The post Building momentum via a versatile investment appeared first on Groupe financier Connor, Clark & Lunn ltée.

Depuis des décennies, les investisseurs institutionnels bâtissent des portefeuilles de plus en plus sophistiqués dans le but d’obtenir de meilleurs résultats. Chaque nouvelle catégorie d’actifs, chaque nouvelle stratégie et chaque nouveau gestionnaire a été ajouté dans l’intention d’améliorer les rendements, d’accroître la diversification ou de renforcer la gestion des risques.

Cependant, cette recherche de sophistication est-elle allée trop loin? À une époque où des portefeuilles simples de marchés publics peuvent rivaliser avec des structures plus complexes, voire les surpasser, les investisseurs devraient se demander si chaque niveau de complexité continue de justifier sa place et s’il demeure porteur d’un objectif précis. Les investisseurs doivent trouver le juste équilibre entre la sophistication des placements et l’efficacité de la gouvernance, tout en évitant le risque de bâtir des portefeuilles inutilement complexes et difficiles à gouverner efficacement.

La course à la complexité

À presque toute conférence sur les placements, les projecteurs sont souvent braqués sur un grand investisseur sophistiqué qui dévoile sa dernière innovation en matière de portefeuille. Leur réussite peut donner l’impression que les stratégies complexes sont à la fois attrayantes et nécessaires. Pourtant, ce qui fonctionne pour un fonds souverain ou un grand régime de retraite public ne se transpose pas nécessairement facilement à un régime de retraite de 1 milliard de dollars doté d’une petite équipe de placement. L’enjeu n’est pas l’accès à des placements sophistiqués, mais la capacité de les gouverner efficacement.

Il faut préciser que la complexité n’est pas intrinsèquement mauvaise. Bon nombre des innovations les plus importantes en matière de placement institutionnel ont procuré des avantages concrets. L’investissement axé sur le passif, par exemple, a amené les investisseurs des régimes de retraite à dépasser la seule perspective de l’actif pour tenir compte de l’interaction entre les actifs et les passifs. Cela a aidé les promoteurs à mieux gérer le risque lié au ratio de capitalisation et à accroître la stabilité des exigences de cotisation et des charges de retraite.

De même, l’immobilier commercial, les infrastructures, le capital-investissement et le crédit privé ont élargi la gamme d’outils à la disposition des investisseurs institutionnels en offrant des combinaisons attrayantes de potentiel de rendement, de diversification, de protection contre l’inflation et de génération de revenu. Les progrès de l’analyse factorielle et de l’investissement fondé sur les facteurs ont également permis aux investisseurs de mieux comprendre les sources du risque et du rendement.

La complexité a sa place dans un portefeuille lorsqu’elle règle un problème ou crée un avantage mesurable. Le défi survient lorsque la complexité devient une fin en soi. Les investisseurs doivent alors se demander si chaque niveau supplémentaire améliore réellement les résultats ou s’il ne fait qu’ajouter des coûts, un fardeau de gouvernance et des exigences opérationnelles. Autrement dit, la sophistication a-t-elle renforcé la résilience du portefeuille ou celui-ci est-il devenu victime de la course à la complexité?

La loi des rendements décroissants de la diversification

De nombreux grands portefeuilles institutionnels comprennent maintenant des dizaines de stratégies et de gestionnaires sous-jacents et, pour certains des plus importants investisseurs, un nombre encore plus élevé. Bien que chaque ajout puisse sembler justifié pris isolément, l’effet cumulatif peut être un portefeuille de plus en plus difficile à comprendre, à superviser et à gouverner. Les expositions commencent à se chevaucher, les risques deviennent moins transparents et la prise de décision ralentit et devient plus lourde. Plutôt que d’améliorer les résultats, les ressources sont de plus en plus consacrées à la gestion de la complexité elle-même.

Il arrive un point où chaque nouvelle stratégie ajoute davantage de complexité qu’elle n’apporte de diversification significative. Ce qui semble initialement renforcer le portefeuille peut plutôt accroître les exigences de gouvernance, les coûts opérationnels et les besoins de surveillance. Dans certains cas, les investisseurs peuvent simplement empiler plusieurs stratégies offrant des expositions sous-jacentes semblables, créant une illusion de diversification tout en rendant le portefeuille de plus en plus difficile à comprendre et à gérer.

Chaque niveau de complexité entraîne un coût. Certains coûts sont visibles, comme les frais de gestion, les charges d’exploitation et les exigences de surveillance. D’autres sont moins évidents, mais potentiellement plus importants : prise de décision plus lente, transparence réduite, biais comportementaux et responsabilisation moindre. Même si ces coûts de gouvernance sont rarement mesurés, ils peuvent déterminer si la complexité améliore ou réduit les résultats à long terme.

La construction de portefeuille est autant un exercice de gouvernance qu’un exercice de placement. Les portefeuilles les plus efficaces ne sont pas nécessairement les plus sophistiqués, mais ceux qui harmonisent les objectifs de placement avec la capacité d’une organisation à gouverner le risque, à surveiller la performance et à prendre des décisions en temps opportun.

Établir un budget de gouvernance

Tout comme les investisseurs établissent des budgets de risque et répartissent le capital de façon réfléchie, ils devraient également envisager un budget de gouvernance. Chaque décision de placement mobilise du temps, de l’attention et de l’expertise en matière de gouvernance. Lorsque la complexité dépasse la capacité disponible, les coûts cachés peuvent se manifester sous forme de décisions retardées, de difficultés de surveillance et de réduction de l’agilité organisationnelle. Par conséquent, le plus grand coût de la complexité d’un portefeuille est souvent celui qui n’apparaît jamais sur un relevé de frais. Il est donc essentiel d’évaluer si la capacité de gouvernance peut soutenir la stratégie du portefeuille.

Pour les comités, un exercice utile consiste à déterminer si leur portefeuille passe les quatre tests suivants :

1. Le comité peut-il expliquer les sources de rendement et de risque du portefeuille?
2. La stratégie peut-elle être mise en œuvre efficacement?
3. Peut-elle être surveillée et gouvernée efficacement?
4. Chaque composante a-t-elle une raison d’être et un rôle distincts?

Lorsque la réponse à l’une de ces questions est incertaine, la complexité peut ajouter davantage de fardeau que d’avantages. Dans de tels cas, l’objectif ne devrait pas être la simplification pour elle-même, mais plutôt la recherche d’une simplicité intelligente, dans laquelle chaque stratégie doit démontrer sa contribution clairement et mériter sa place au sein du portefeuille.

La simplicité intelligente

La simplicité intelligente ne constitue pas un rejet des placements sophistiqués. Elle reconnaît plutôt que la complexité devrait être un choix délibéré et non un résultat par défaut. Les portefeuilles sont mieux servis lorsque chaque stratégie, chaque gestionnaire et chaque répartition peut clairement démontrer pourquoi sa présence est justifiée et comment elle améliore l’ensemble du portefeuille. La simplicité intelligente consiste à atteindre les résultats souhaités avec le plus petit nombre nécessaire de composantes de portefeuille.

Des structures de portefeuille plus simples encouragent les investisseurs à se concentrer sur les décisions qui comptent le plus. Plutôt que de consacrer du temps de gouvernance à choisir entre des dizaines de gestionnaires, les comités peuvent accorder davantage d’attention à des tâches telles que la répartition stratégique de l’actif, la budgétisation du risque et l’analyse de scénarios, qui peuvent souvent offrir un meilleur rendement sur l’effort de gouvernance que des décisions additionnelles de sélection de gestionnaires.

Chaque composante d’un portefeuille devrait contribuer de façon significative aux résultats globaux du portefeuille et justifier le fardeau de gouvernance qu’elle crée. Ce principe est au cœur de l’approche axée sur le portefeuille total (TPA), qui gagne en popularité auprès des plus grands investisseurs mondiaux et dans laquelle les placements sont évalués en fonction de leur contribution aux objectifs globaux du portefeuille. Bien que l’adoption complète de la TPA exige des changements organisationnels importants, sa discipline sous-jacente s’applique à tous.

Les investisseurs peuvent commencer par réévaluer périodiquement chaque stratégie, chaque gestionnaire et chaque répartition avec un regard neuf. Si une position ne serait pas retenue aujourd’hui pour faire partie d’un portefeuille nouvellement construit, son maintien mérite d’être examiné. Une complexité qui ne peut être justifiée par sa valeur actuelle peut simplement être l’héritage de décisions antérieures.

Considérations pour une simplicité intelligente

En réduisant la complexité inutile, en rationalisant la structure des gestionnaires et en harmonisant la conception du portefeuille avec les objectifs globaux du fonds, les investisseurs peuvent créer des portefeuilles plus faciles à comprendre, plus faciles à superviser et plus efficaces.

Cependant, adopter une simplicité intelligente ne réduit ni la responsabilité fiduciaire ni l’importance de la formation continue. Une surveillance efficace exige toujours une formation continue, une prise de décision disciplinée et une compréhension approfondie des risques et des occasions qui façonnent les résultats à long terme.

1. Regrouper les expositions similaires
   Au fil du temps, les portefeuilles peuvent accumuler des niveaux de placement qui semblent différents en surface, mais qui reposent sur les mêmes facteurs économiques sous-jacents. Cela peut se produire sur les marchés publics et privés ou lorsque plusieurs gestionnaires actifs appliquent des styles semblables. Un examen plus attentif des véritables sources de rendement du portefeuille peut révéler que la diversification est plus limitée que ne le laisse croire le nombre de mandats, créant ainsi des possibilités de simplification sans compromettre les résultats.

2. Réduire le nombre de gestionnaires
   Un plus grand nombre de gestionnaires ne crée pas toujours un meilleur portefeuille. Dans de nombreux cas, une liste plus restreinte peut donner une vision plus claire des risques du portefeuille, renforcer la responsabilisation des gestionnaires, simplifier la surveillance et améliorer l’efficacité des coûts. Le regroupement des mandats peut permettre aux investisseurs de se concentrer sur leurs relations les plus importantes tout en maintenant une exposition étendue aux marchés. Par exemple, des mandats distincts d’actions américaines, internationales et de marchés émergents peuvent être gérés efficacement au moyen d’un plus petit nombre de mandats d’actions mondiales.

3. Se concentrer sur les résultats, et non sur les catégories d’actifs
   Les portefeuilles institutionnels sont souvent organisés selon les catégories d’actifs. Mais lorsqu’on les examine sous l’angle des résultats recherchés, comme la croissance, le revenu, la protection contre l’inflation et la résilience, plusieurs catégories d’actifs différentes peuvent remplir la même fonction. Les infrastructures, l’immobilier, les obligations indexées sur l’inflation et le crédit privé peuvent tous contribuer à la génération de revenu et à la protection contre l’inflation.Lorsqu’ils adoptent cette perspective axée sur les résultats, les investisseurs découvrent souvent que plusieurs stratégies règlent le même problème, ce qui crée des possibilités de simplification sans compromettre les résultats.

4. Adopter un budget de complexité
   Tout comme les investisseurs fonctionnent dans les limites d’un budget de risque, ils devraient également envisager d’établir un budget de complexité. Avant d’ajouter une nouvelle stratégie, il faut poser quatre questions essentielles :
   • Quelle valeur distincte cette stratégie apporte-t-elle au portefeuille?
   • Quelle répartition existante pourrait-elle remplacer?
   • Comment le succès sera-t-il défini et mesuré?
   • Avons-nous la capacité de gouvernance nécessaire pour la superviser efficacement?

   Un budget de complexité fait passer la conversation du simple ajout des dernières idées à des choix délibérés et fortement affirmés, contribuant ainsi à faire évoluer les portefeuilles de façon réfléchie plutôt qu’à les laisser accumuler des niveaux de complexité inutiles.

5. Privilégier la compréhension
   Une bonne règle pratique en matière de gouvernance veut que les membres du comité puissent expliquer avec confiance d’où devraient provenir les rendements, quels risques sont pris et comment le portefeuille est susceptible de se comporter dans différentes conditions de marché. Lorsque cela devient difficile, cela peut indiquer que la complexité a pris le dessus sur la clarté. L’objectif n’est pas la simplicité pour elle-même, mais un portefeuille dans lequel chaque composante remplit une fonction distincte et compréhensible. Le résultat est souvent une surveillance plus efficace, une conviction mieux définie et un portefeuille plus facile à défendre lorsque les marchés deviennent difficiles.

Repenser la conception grâce à la simplicité intelligente

La gouvernance est souvent le déterminant caché de la réussite en matière de placement. Alors que les investisseurs institutionnels accordent beaucoup d’attention à la performance, au risque et aux coûts, ils sont beaucoup moins nombreux à examiner si leur modèle de gouvernance renforce ou limite la prise de décision. La conception d’un portefeuille devrait tenir compte non seulement des occasions de placement, mais aussi de la capacité de gouvernance. Un portefeuille bien conçu est un portefeuille qu’une organisation peut comprendre, superviser et maintenir avec confiance dans différents contextes de marché.

La simplicité intelligente exige d’évaluer les portefeuilles sous deux angles tout aussi importants : l’efficacité des placements et l’efficacité de la gouvernance. L’objectif n’est pas d’éliminer la complexité, mais de s’assurer qu’elle mérite sa place. Les stratégies qui améliorent véritablement les résultats et qui peuvent être gouvernées efficacement méritent d’être incluses. Celles qui mobilisent une part disproportionnée de l’attention, des ressources ou des efforts de surveillance pour un avantage limité devraient être réévaluées. Un portefeuille optimal n’est pas nécessairement le plus sophistiqué, mais celui qui atteint ses objectifs avec le plus de clarté, de conviction et d’efficacité en matière de gouvernance.

The post Les portefeuilles institutionnels sont-ils devenus trop complexes et inutilement sophistiqués? appeared first on Groupe financier Connor, Clark & Lunn ltée.

Institutional investors have spent decades building increasingly sophisticated portfolios in pursuit of better outcomes. Each new asset class, strategy and manager has been added with the intention of improving returns, enhancing diversification or strengthening risk management.

However, has the pursuit of sophistication gone too far? In an era when simple public market portfolios can rival or outperform more complex structures, investors should consider whether every layer of complexity continues to earn its place and whether it remains purposeful. Investors need to strike the right balance between investment sophistication and governance efficiency and avoid the risk of building portfolios that are over-engineered and difficult to govern effectively.

The complexity arms race

Attend almost any investment conference and the spotlight is often on a large, sophisticated investor unveiling its latest portfolio innovation. Their success can make complex strategies appear both compelling and necessary. Yet what works for a sovereign wealth fund or large public pension plan may not translate seamlessly to a $1 billion pension plan with a lean investment team. The challenge is not access to sophisticated investments, but the capacity to govern them effectively.

To be clear, complexity is not inherently bad. Many of the most important innovations in institutional investing have delivered meaningful benefits. Liability-driven investing, for example, shifted the focus of pension investors beyond assets alone to the interaction between assets and liabilities. This helped sponsors better manage funded status risk and create greater stability in contribution requirements and pension expense.

Similarly, commercial real estate, infrastructure, private equity and private credit have expanded the institutional toolkit by offering attractive combinations of return potential, diversification, inflation protection and income generation. Advances in factor analysis and factor-based investing have also deepened investors’ understanding of the drivers of risk and return.

Complexity deserves a place in a portfolio when it solves a problem or creates a measurable advantage. The challenge arises when complexity becomes an objective in itself. At that point, investors must ask whether each additional layer is genuinely improving outcomes or merely adding cost, governance burden and operational demands. In other words, has sophistication enhanced the portfolio’s resilience or has the portfolio become a victim of the complexity arms race?

The law of diminishing diversification

Many large institutional portfolios now contain dozens, and for some of the largest investors, even a greater number of underlying strategies and managers. While each addition may appear justified on its own, the cumulative effect can be a portfolio that is increasingly difficult to understand, oversee, and govern. Exposures begin to overlap, risks become less transparent and decision-making becomes slower and more cumbersome. Rather than enhancing outcomes, resources are increasingly devoted to managing complexity itself.

There comes a point where each new strategy adds more complexity than meaningful diversification. What initially appears to strengthen the portfolio can instead increase governance demands, operational costs and oversight requirements. In some cases, investors may simply be layering multiple strategies that provide similar underlying exposures, creating the illusion of diversification while making the portfolio increasingly difficult to understand and manage.

Every layer of complexity carries a cost. Some costs are visible, such as management fees, operational expenses and oversight requirements. Others are less obvious but potentially more significant: slower decision-making, reduced transparency, behavioural biases and diminished accountability. While these governance costs are rarely measured, they may determine whether complexity enhances or detracts from long-term outcomes.

Portfolio construction is as much a governance exercise as it is an investment exercise. The most effective portfolios are not necessarily the most sophisticated, but those that align investment objectives with an organization’s ability to govern risk, monitor performance and make timely decisions.

Setting a governance budget

Just as investors establish risk budgets and allocate capital thoughtfully, they should also consider a governance budget. Every investment decision consumes governance time, attention and expertise. When complexity exceeds available capacity, the hidden costs can emerge in the form of delayed decisions, oversight challenges, and reduced organizational agility. As a result, the greatest cost of portfolio complexity is often the one that never appears on a fee report. It is therefore key to assess whether the governance capacity can support the portfolio strategy.

A useful exercise for committees is to assess whether their portfolio passes the following four tests:

1. Can the committee explain its sources of return and risk?
2. Can the strategy be implemented efficiently?
3. Can it be monitored and governed effectively?
4. Does each component serve a distinct purpose and role?

When the answer to any of these questions is uncertain, complexity may be adding more burden than benefit. In such cases, the goal should not be simplification for its own sake, but rather the pursuit of smart simplicity where every strategy must demonstrate a clear contribution and earn its place within the portfolio.

Smart simplicity

Smart simplicity is not a rejection of sophisticated investing. Rather, it is the recognition that complexity should be a deliberate choice, not a default outcome. Portfolios are best served where every strategy, manager and allocation can clearly demonstrate why it belongs and how it improves the portfolio as a whole. Smart simplicity is achieving desired outcomes using the fewest portfolio building blocks necessary.

Simpler portfolio structures encourage investors to focus on the decisions that matter most. Instead of spending governance time selecting between dozens of managers, committees can devote more attention to tasks such as strategic asset mix, risk budgeting and scenario analysis, which can often provide a higher return on governance effort than incremental manager selection decisions.

Every component of a portfolio should contribute meaningfully to total portfolio outcomes and justify the governance burden it creates. This principle is at the heart of the trending total portfolio approach (TPA) amongst the largest global investors, where investments are assessed according to their contribution to total portfolio objectives. While the full adoption of the TPA requires significant organizational change, its underlying discipline is universally applicable.

Investors can begin by periodically reassessing every strategy, manager and allocation with fresh eyes. If a holding would not be selected for inclusion in a newly constructed portfolio today, its continued presence deserves scrutiny. Complexity that cannot be justified through current merit may simply be a legacy of past decisions.

Considerations for smart simplicity

By reducing unnecessary complexity, rationalizing manager structures and aligning portfolio design with total fund objectives, investors can create portfolios that are easier to understand, easier to oversee and more effective.

However, embracing smart simplicity does not lessen fiduciary responsibility or diminish the importance of ongoing education. Effective oversight still requires continuous education, disciplined decision-making and a deep understanding of the risks and opportunities that shape long-term outcomes.

1. Consolidate similar exposures
   Over time, portfolios can accumulate layers of investments that appear different on the surface but rely on the same underlying economic drivers. This can occur across public and private markets, or through multiple active managers pursuing similar styles. A closer examination of the portfolio’s true sources of return may reveal that diversification is more limited than the number of mandates suggests, creating opportunities to simplify without sacrificing outcomes.

2. Reduce manager count
   More managers do not always create a better portfolio. In many cases, a streamlined roster can provide clearer insight into portfolio risks, strengthen manager accountability, simplify oversight and improve cost efficiency. Consolidating mandates can allow investors to focus on their highest-conviction relationships while maintaining broad market exposure. For example, separate US, international and emerging market mandates may be effectively managed through a smaller number of global equity mandates.

3. Focus on outcomes, not asset classes
   Institutional portfolios are often organized around asset classes. But when viewed through the lens of outcomes, such as growth, income, inflation protection and resilience, many different asset classes may be serving the same purpose. Infrastructure, real estate, inflation-linked bonds and private credit may all contribute to income generation and inflation protection.When portfolios are viewed through this outcome-oriented lens, investors often discover that multiple strategies are solving the same problem, creating opportunities to simplify without compromising results.

4. Adopt a complexity budget
   Just as investors operate within a risk budget, they should also consider establishing a complexity budget. Before introducing any new strategy, ask four critical questions:
   • What distinct value does it bring to the portfolio?
   • What existing allocation could it replace?
   • How will success be defined and measured?
   • Do we have the governance capacity to oversee it effectively?

   A complexity budget shifts the conversation from simply adding latest ideas to making deliberate, high-conviction choices, helping ensure portfolios evolve thoughtfully rather than accumulate layers of unnecessary complexity.

5. Prioritize understandability
   A useful governance rule of thumb is that committee members should be able to confidently articulate where returns are expected to come from, what risks are being taken and how the portfolio is likely to perform under different market conditions. When that becomes difficult, it may be a sign that complexity has overtaken clarity. The goal is not simplicity for its own sake, but a portfolio in which every component serves a distinct and understandable purpose. The result is often more efficient oversight, sharper conviction and a portfolio that is easier to defend when markets become challenging.

Re-engineering through smart simplicity

Governance is often the hidden determinant of investment success. While institutional investors devote significant attention to performance, risk and costs, far fewer examine whether their governance model strengthens or constrains decision-making. Portfolio design should reflect not only investment opportunity but also governance capacity. A well-engineered portfolio is one that an organization can confidently understand, oversee and sustain through changing market environments.

Smart simplicity requires evaluating portfolios through two equally important lenses: investment efficiency and governance efficiency. The goal is not to eliminate complexity, but to ensure complexity earns its place. Strategies that meaningfully enhance outcomes and can be effectively governed deserve inclusion. Those that consume disproportionate attention, resources or oversight for limited benefit should be reconsidered. An optimal portfolio is not necessarily the most sophisticated, but the one that delivers its objectives with the greatest clarity, conviction and governance effectiveness.

The post Have institutional portfolios become over-engineered and too complex? appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The global money numbers conceal a divergence between US strength and alarming real-terms contractions in Europe, Japan and Australia, with Chinese growth running at a modest level by its historical standards – chart 2. One implication is that the expected global slowdown will be led by the weak-money grouping, with the US and China showing resilience. Another is that the ECB and BoJ have already overtightened policy, while the US Fed may still be some way “behind the curve”.

Chart 2

The global real money slowdown was initially driven by an inflation boost from higher energy prices. Nominal money growth has fallen more recently, probably reflecting the initial impact of policy tightening – chart 3.

Chart 3

Six-month consumer price momentum will likely rebound in Q4, based on current commodity prices. US monetary exceptionalism, meanwhile, may be ending, with nominal money growth falling back in August. Global real money expansion, therefore, could slow further into year-end, in turn signalling darker economic prospects for mid-2027.

Chinese policy is an upside risk. A slowdown in exports as global growth cools could be the trigger for more substantive measures to boost domestic demand. Still, the full impact of any monetary pick-up probably wouldn’t land before mid-2027.

Eurozone narrow money weakness has been led by France and Italy – chart 4. Eurozone banks, meanwhile, have stopped buying French Treasuries. The French government’s 2027 deficit-reduction plan looks both insufficiently ambitious and unachievable ahead of the April / May presidential election. An economic / funding crisis may be brewing unless the ECB signals an earlier-than-expected end to policy restraint.

Chart 4

Global six-month real narrow money growth crossed below industrial output expansion in April, remaining lower in August. The change in “excess” money conditions has been reflected in upward pressure on bond yields and a stalling-out of equities, with the equal-weighted version of the MSCI World index recently falling below its end-February level.

The real money / output growth gap could remain at around its current level into year-end, with both components losing momentum. Historically, equity market performance has been correlated with the sign of the gap, with bond markets more sensitive to its rate of change. The suggested scenario, therefore, could be associated with a stabilisation of bond yields and disappointing equity returns.

The post A “monetarist” perspective on current equity markets appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The global money numbers conceal a divergence between US strength and alarming real-terms contractions in Europe, Japan and Australia, with Chinese growth running at a modest level by its historical standards – chart 2. One implication is that the expected global slowdown will be led by the weak-money grouping, with the US and China showing resilience. Another is that the ECB and BoJ have already overtightened policy, while the US Fed may still be some way “behind the curve”.

Chart 2

The global real money slowdown was initially driven by an inflation boost from higher energy prices. Nominal money growth has fallen more recently, probably reflecting the initial impact of policy tightening – chart 3.

Chart 3

Six-month consumer price momentum will likely rebound in Q4, based on current commodity prices. US monetary exceptionalism, meanwhile, may be ending, with nominal money growth falling back in August. Global real money expansion, therefore, could slow further into year-end, in turn signalling darker economic prospects for mid-2027.

Chinese policy is an upside risk. A slowdown in exports as global growth cools could be the trigger for more substantive measures to boost domestic demand. Still, the full impact of any monetary pick-up probably wouldn’t land before mid-2027.

Eurozone narrow money weakness has been led by France and Italy – chart 4. Eurozone banks, meanwhile, have stopped buying French Treasuries. The French government’s 2027 deficit-reduction plan looks both insufficiently ambitious and unachievable ahead of the April / May presidential election. An economic / funding crisis may be brewing unless the ECB signals an earlier-than-expected end to policy restraint.

Chart 4

Global six-month real narrow money growth crossed below industrial output expansion in April, remaining lower in August. The change in “excess” money conditions has been reflected in upward pressure on bond yields and a stalling-out of equities, with the equal-weighted version of the MSCI World index recently falling below its end-February level.

The real money / output growth gap could remain at around its current level into year-end, with both components losing momentum. Historically, equity market performance has been correlated with the sign of the gap, with bond markets more sensitive to its rate of change. The suggested scenario, therefore, could be associated with a stabilisation of bond yields and disappointing equity returns.

The post A “monetarist” perspective on current equity markets appeared first on Groupe financier Connor, Clark & Lunn ltée.

How does an investment manager’s ownership structure influence the way it builds its business and serves clients over the long term?

In a recent Benefits and Pensions Monitor article, Michael Walsh, President and Managing Director of Connor, Clark & Lunn Financial Group, discusses the firm’s private, employee- and partner-owned model and the role ownership plays in attracting and retaining investment talent, aligning incentives and supporting a long-term approach to business building.

“We’re in an intellectual capital business, and the way to win in an intellectual capital business is to get great people into the firm and for them to stick around over the long term and build businesses,” Michael says. “Someone who joins us has the potential to become an owner, and that’s intrinsically motivating.”

The article also explores CC&L Financial Group’s multi-affiliate structure, including how ownership supports the independence of its investment teams and creates incentives for long-term succession and continuity.

 
Read the full article

The post Michael Walsh discusses the role of ownership in an investment management firm’s structure appeared first on Groupe financier Connor, Clark & Lunn ltée.

De quelle façon la structure d’actionnariat d’un gestionnaire de placements influence-t-elle la façon dont il développe ses activités et sert ses clients à long terme?

Dans un récent article publié par Benefits and Pensions Monitor, Michael Walsh, président et directeur général du Groupe financier Connor, Clark & Lunn, discute du modèle privé de la société, détenu par ses employés et ses associés, ainsi que du rôle de l’actionnariat pour attirer et fidéliser les talents en placement, harmoniser les incitatifs et favoriser une approche axée sur le développement des activités à long terme.

« Nous sommes dans le domaine du capital intellectuel, et la façon de réussir dans ce domaine consiste à attirer des personnes de grand talent au sein de la société, à les fidéliser à long terme et à développer des entreprises », explique Michael. « Une personne qui se joint à nous a la possibilité de devenir propriétaire, ce qui est intrinsèquement motivant. »

L’article examine également la structure multiaffiliée du Groupe financier CC&L, notamment la façon dont l’actionnariat soutient l’indépendance de ses équipes de placement et crée des incitatifs favorisant la relève et la continuité à long terme.

 
Lire l’article complet (en anglais seulement)

The post Michael Walsh discute du rôle de l’actionnariat dans la structure d’une société de gestion de placements appeared first on Groupe financier Connor, Clark & Lunn ltée.

The view here is that the rise is best understood as a symptom of a restrictive shift in global “excess” money conditions.

Conditions are defined to be accommodative or restrictive depending on whether the global stock of money is above or below the level required to support current economic activity. Any imbalance – and its rate of change – will have implications for asset prices.

Excess money can’t be observed directly. A flow-based proxy measure found to be informative historically is the difference between six-month rates of change of global real narrow money and industrial output.

In data since 1970, global equities performed strongly on average when this measure was positive (allowing for reporting lags), lagging cash returns when it was negative.

Government bond markets appear to be more sensitive to changes in excess money than its level. Chart 1 shows a coincident relationship between the six-month change in US 10-year Treasury yields and the equivalent change in the proxy measure, plotted inverted – chart 1.

Chart 1

Global real money growth moved from above to below industrial output expansion between February and August, i.e. the proxy measure switched from positive to negative – chart 2. An associated shift in its six-month rate of change aligns with the pick-up in yields – chart 1.

Chart 2

How might excess money conditions develop from here? Monetary trends are difficult to forecast but policy tightening and a near-term inflation boost from higher energy costs suggest a further decline in real money growth.

Upbeat September PMI results support optimism about near-term industrial output prospects but slower real money growth may be reflected in a loss of momentum towards year-end, allowing for a normal lag.

A reasonable expectation, therefore, is that the real money / output growth gap will remain negative but stop widening soon. The six-month change in the proxy measure, in other words, could return to zero, in turn implying a stabilisation of bond yields.

A still-negative gap would, however, suggest downside risk for equities.

The post What explains the bond bear? appeared first on Groupe financier Connor, Clark & Lunn ltée.

The view here is that the rise is best understood as a symptom of a restrictive shift in global “excess” money conditions.

Conditions are defined to be accommodative or restrictive depending on whether the global stock of money is above or below the level required to support current economic activity. Any imbalance – and its rate of change – will have implications for asset prices.

Excess money can’t be observed directly. A flow-based proxy measure found to be informative historically is the difference between six-month rates of change of global real narrow money and industrial output.

In data since 1970, global equities performed strongly on average when this measure was positive (allowing for reporting lags), lagging cash returns when it was negative.

Government bond markets appear to be more sensitive to changes in excess money than its level. Chart 1 shows a coincident relationship between the six-month change in US 10-year Treasury yields and the equivalent change in the proxy measure, plotted inverted – chart 1.

Chart 1

Global real money growth moved from above to below industrial output expansion between February and August, i.e. the proxy measure switched from positive to negative – chart 2. An associated shift in its six-month rate of change aligns with the pick-up in yields – chart 1.

Chart 2

How might excess money conditions develop from here? Monetary trends are difficult to forecast but policy tightening and a near-term inflation boost from higher energy costs suggest a further decline in real money growth.

Upbeat September PMI results support optimism about near-term industrial output prospects but slower real money growth may be reflected in a loss of momentum towards year-end, allowing for a normal lag.

A reasonable expectation, therefore, is that the real money / output growth gap will remain negative but stop widening soon. The six-month change in the proxy measure, in other words, could return to zero, in turn implying a stabilisation of bond yields.

A still-negative gap would, however, suggest downside risk for equities.

The post What explains the bond bear? appeared first on Groupe financier Connor, Clark & Lunn ltée.