Where investment decisions can fall short – and why

IFM Investors CEO David Neal on conviction, alignment and long-term investing

David Neal, Chief Executive Officer of IFM Investors, believes too many institutional investors play it safer than they should when it comes to backing their strongest ideas.

You need the conviction to stick with your investment philosophy through difficult times. Markets will kill you unless you have that level of conviction.

David Neal

Chief Executive Officer

“You need to have a strong view on your own investment philosophy,” he says. “What are your set of beliefs about how portfolios should be managed? And you need the conviction to stick with that through difficult times. Markets will kill you unless you have that level of conviction.”

Speaking with The High Flyers podcast host Vidit Agarwal, Neal argues that while investment organisations are strong at building specialist teams, they can be less effective at bringing these views together into a coherent whole.

The result is that firms can miss their best opportunities or underweight them, while risks can build across their investment portfolios in less obvious ways.

Neal also believes alignment with clients can break down over time – particularly where long investment horizons create room for value to be extracted.

“The point of a professional is that [they put] client interest before self-interest,” he says. “I don't think that is a good description of a lot of parts of the finance industry.”

His critique is that in some cases, incentives can lead to decisions that prioritise fee generation over long-term outcomes.

“If I were purely profit-motivated, my objective would be to maximise my fee stream,” Neal says. “That might tell me to buy at a different time or buy sooner, even though it's not that great an investment. It might tell me to hold on to it for longer, even though it's probably time to sell it.”

“Especially when there's long time horizons involved, it opens up opportunities for individuals and firms to extract too much rent from their clients,” he adds.

Tripling down on conviction

For Neal, improving outcomes starts with being clearer – and bolder – about where conviction truly sits.  

One way he tests this is by bringing investment teams together and asking a simple question: ‘Why don't we triple it?’

The aim is not to take more risk for its own sake, but to pressure-test whether the strongest ideas are being backed with sufficient weight.

The exercise forces teams to defend their ideas and consider their impact on the overall investment portfolio, rather than within their own asset class.

The CIO's job is to bring deep specialisms together into a coherent whole and make that contest of capital work.

David Neal

Chief Executive Officer

“The CIO's job is to bring those deep specialisms together into a coherent whole and make that contest of capital work,” he says, adding: “If your head of real estate has curated their best idea and the head of infrastructure has done the same, but they're not debating themselves … you're missing a huge amount of input.”

Alignment and long-term outcomes

For Neal, conviction also needs to align with the needs of clients.

He notes that because IFM is owned by its principal investors – Australian and UK pension funds – its mission is clear: “We have to generate excellent long-term returns [for them], not make money for ourselves.”

He also believes long-term fund managers need to consider the broader impact of how assets are managed.

“This is a values statement; it is also hard finance,” he says. “The best way of generating long-term returns is to operate your assets well, but also in a way that is good for the system

This means investing in a way that supports the communities, economies and environments those assets sit within – helping sustain performance over time and maintain trust.

Conversely, approaches that focus solely on extracting value can create pressure on local communities, attract regulatory scrutiny and ultimately weaken long-term returns.

AI and the next phase of infrastructure

These considerations are becoming more relevant as new forms of infrastructure emerge – particularly around AI.

The technology is attracting significant investment, but it also raises questions around long-term profitability, its impact on jobs, and the pressure it places on physical infrastructure, including energy, water and grid capacity.

That introduces broader considerations for investors – balancing growth opportunities while maintaining community support and social licence.

IFM has taken a measured approach, with investments in renewable energy-powered data centres and fibre optic network operators. More broadly, Neal frames AI as part of a much larger infrastructure challenge.

We talk about AI all the time and forget that there's still an enormous energy transition that we need to do over the next few decades. That's a massive re-wiring of the world.

David Neal

Chief Executive Officer

“We tend to talk about AI all the time and forget that there's still an enormous energy transition that we need to do over the next few decades,” he says. “That's a massive rewiring of the world… so there's an enormous infrastructure need there.”

What still matters

For Neal, the fundamentals of investing remain unchanged.

“There's a lot of need to continue to invest in improving infrastructure because it's at the heart of the productivity of economies,” he says.

In that context, the challenge for infrastructure-focused investors is not just identifying the right opportunities but having the clarity and conviction to back them with intent.

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Listen to the full conversation with David Neal on The High Flyers Podcast

 

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