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Tilly Franklin

“The global shift away from bonds saved our returns in 2022.”

“A specialised instrument that combines long-term capital growth with reliable distributions” is how Tilly Franklin, CEO and CIO of University of Cambridge Investment Management, described the GBP 4 billion Cambridge University Endowment Fund (CUEF). The University is an institution with 814 years of history and has so far produced 121 Nobel Prize recipients. The Fund aims to ensure that this trend continues by supporting the University’s research and teaching activities financially, providing almost GBP 150 million of funding in 2023 alone. The Fund generated a return of 4.1% in 2022/23 – a remarkable figure given the turbulence in the capital markets caused by the turnaround in interest rates.

Ms Franklin and her team have achieved this by largely moving away from bonds. The Fund’s fixed income / cash ratio fell from 16 percent as recently as June 2020 to just four percent two years later – and this figure is set to remain low in the future. Franklin plans to significantly expand the Fund’s long-term private equity from its current level of 23 percent to 30 percent, while aiming to reduce the equity ratio from 40 percent to 30 percent. In addition, the Fund already contains a significant proportion of shares in absolute return, credit and real assets. The Fund’s return target is the Consumer Price Index + 5% p.a. It has exceeded this target by generating an average return of 9.3% p.a. over the last ten years.

The Fund is also committed to reaching the University’s sustainability targets, and aims to no longer be significantly invested in fossil fuel producers by 2030. Its stated target is to bring net greenhouse gas emissions in the portfolio down to zero by 2038. When asked why the Fund’s ESG efforts are so heavily focused on its CO2 target, Franklin replied: “Our focus on emissions is fact-based, which means we can measure it more clearly.” At the same time, however, she also believes that one of the asset management industry’s current challenges is to adapt appropriately to the consequences and opportunities of the transition to renewable energy sources.

Franklin also cited other challenges such as positioning the portfolio in the future in a way that enables the Fund to achieve its own targets amid higher interest rates and increased market uncertainty; securing liquidity within a broad spectrum of conceivable future market conditions; exploring opportunities in emerging markets; and, last but not least, assessing geopolitical risk in China. Franklin: “I have witnessed the impressive entrepreneurial energy and innovation there. Although Chinese equity valuations are extremely attractive at present, we need to monitor the country and its markets very carefully.”

Interview with Tilly Franklin

Tilly Franklin explains why she is still investing in equities amid rising interest rates, reveals whether she expects mega caps to continue dominating the equity markets, and discusses how the changing geopolitical landscape is impacting her investment strategy.