Appraisals from audience members exiting the auditoriums at last week’s National Association of Pension Funds’ investment conference was that the sessions were ‘interesting’ or ‘insightful’ – for some, so much so that they were fizzing with enthusiasm.
But it was difficult to determine if pension managers found the panellists’ insights helpful in a directly practical sense, rather they were reminded of the perplexing economic and regulatory environment in which they now find themselves.
And much of the industry-specific backdrop still resides in uncharted lands: reforms – haven’t happened yet; defined benefit beyond the next European directive – many will just sit until they are compelled to act; collective defined contribution – hasn’t happened and people still don’t buy that it ever will.
What this all means is there is a mixture of confusion and a lack of conviction among schemes and their service providers about exactly how to achieve full funding or good member outcomes.
Common to both DB and defined contribution is the paucity of options for getting a decent rate at an acceptable level of risk. In one session, a straw poll showed liquidity was a factor in the asset allocation decisions of 86.7 per cent of the audience – but the lack of liquidity is freezing schemes’ options in some areas.
Illustration by Ben Jennings
PwC’s Raj Mody asked Man Group’s chief executive Manny Roman what trustees should do in this market environment.
Roman said he was somewhat surprised at how bullish people were on equities when it was in fact alternatives that were likely to surprise on the upside – an asset class that our recent story demonstrated was luring pension funds in their droves – and those willing to chase the illiquidity premium, he said, could expect roughly 2-3 per cent on top of average rates elsewhere.
Railpen’s portfolio manager Rachit Sharma pointed out that “not only has liquidity receded, it has also shifted”.
He said the rising costs of holding derivatives in liability-driven investment strategies, for example, is seeing some cost-conscious pension funds turn to mutuals and exchange traded funds instead.
It will be interesting to see whether ETFs start to gain more significant traction among UK schemes.
Maxine Kelly is acting editor of Pensions Expert. You can follow her on Twitter @MaxineEK and the team @pensions_expert.
