Transparency and Innovation in Institutional Investing: How To Unlock Beneficial Investment Organizations’ Capital for Society’s Critical Projects

Abstract

America is struggling with many long-term problems, such as aging infrastructure, the imperilment of social security, environmental degradation, and a vulnerable healthcare system. Capital from beneficial investment organizations (BIOs) in the US (e.g., public pension funds, endowments) could help in resolving many of these problems. However, a lack of transparency impairs BIOs’ ability to support the long-term investments needed to tackle the above problems. Weak transparency among BIOs also costs US beneficiaries and taxpayers hundreds of billions of dollars each year, by contributing to BIOs’ paying excessive fees and costs; taking unwanted and avoidable risks; and chronically underperforming. Improving reporting and disclosure standards for US BIOs should increase their risk-adjusted net performance, as well as their capacities to innovate. These changes will enable BIOs to better serve their beneficiaries and American society over the long term. US BIOs are unlikely to spontaneously improve their reporting and disclosure practices. Policy interventions will be needed to achieve greater transparency. Several policy pathways are available to the Biden Administration. The most immediately actionable of these involves launching a Presidential Advisory Commission via Executive Order, although we describe many different paths.