From 2D to 3D Investing with Geraldine Leegwater and Colin Tissen | System Level Investing Series

So the chapter in the handbook that you all co-authored, it's about how you move from what you call two dimensional to three dimensional investing.

So maybe just tell us a little bit about what that is, what that means when you started this process of moving towards 3D investing and what were some of the kind of organizational changes that you made in that process?

Yeah, well, maybe just to start with the three dimensions that we're referring to here is obviously risk return.

And then the third element that we added there is sustainability in the broader sense of the word.

And I'll explain that.

I think it's important to stress that already for many, many years, implicitly, PDGM and PSAW have taken into account all those three dimensions.

But when we wrote Vision 2030 in 2021, and when we were just heading towards a major change in our pension system in the Netherlands, we started to reassess what this new pension scheme implies, what is going on in the outside world.

And we did realize that just optimizing investment portfolios along the traditional lines of risk and return, where you basically focus on risks, returns in the context of the financial markets, we realized that basically there was something missing there.

Because if you imagine a nurse in our pension scheme, social and healthcare sector, starting to work at the age of 20, it will take at least 45 years before this person will receive her retirement income.

That implies we have an incredibly long investment horizon.

And then just optimizing within the limits of just the financial markets, it's not sufficient.

We do need to take into account what's happening in the real world.

and therefore also how the developments in the real world and of course major transitions, I'm sure we will talk about these, will influence both the future risk premiums, but also the risks that we face when investing.

And those are beyond financial risks.

Those are also system risks.

And also we have to investigate what will determine future competitiveness in the world and where will we basically generate our return.

And that made us realize that we should no longer just optimize along those two dimensions, but we should in an integrated way, basically incorporate the third dimension.

And that's why we call it the move from 2D to 3D investing.

Well, you mentioned already, well, what does that imply in practice? Well, first of all, it implies that we literally are building a new investment portfolio in terms of content, in terms of where you invest and how you invest.

And I'm sure we will elaborate on that one later on with Colin explaining probably some of the changes we made.

But we also realized that if we want to do that, in our case, we could not just continue to add certain system risk or sustainability efforts on top of our existing investment process.

We realized that if you want to do this properly, you should really reinvent your investment process and go along all the steps in your process to investigate what it implies and how do you really incorporate this third dimension, because otherwise you don't get the collective thinking along those three dimensions.

So what it implies then in terms of our investment process, A concrete example is we did abolish the responsible investment department because it's typically something that you keep separate from your regular investments.

So that is fully integrated into our investment process.

But other examples, and I realize they are specifically for our case, We introduced the total portfolio approach.