Investing for Outcomes
There are different approaches to investing. For example, municipalities might identify all long-term future cash needs and invest with time horizons that match those needs within the risk tolerance constraints set by Council. While there is no single right way, at ONE Investment, we advocate the concept of outcome investing where municipalities identify the type of return stream needed and invest according to the risk tolerance. A forecast of the timing of cash needs is still essential for outcome investing, but this approach allows for flexibility in case those flows change.
ONE Investment has identified the need for three municipal outcomes:
- Contingencies: long-term savings that grow fairly steadily and serve as insurance to cover unexpected cash needs. Timing of the draws on the funds is unknown and likely large, after which the growth process begins again.
- Stable returns: principal is invested to grow at about the rate of inflation while also generating a consistent return that can be taken out each year to fund regular asset needs, such as maintenance or cemeteries.
- Target date projects: saving for large expenditures at a specific date, such as the building of a new town hall in 15 years or bridge replacement in 30 years.
ONE Investment’s internal portfolio manager uses externally managed building block portfolios to create these outcomes under the new prudent investor regulations. The building blocks include the existing portfolios and new ones that invest in international stocks and bonds. We look forward to working with municipalities to advise on which outcomes make sense for long-term reserves and reserve funds.