Editorial: In the republic of mediocrity

Perhaps the choice of words was to demonstrate that the “new normal” low-rate, low-growth paradigm that has largely restrained developed economies since the financial crisis was not much to shout about, in case anyone needed reminding.

But mediocre looks rosy to pension fund investors right now, with Redington’s Rob Gardner setting the tone in his tweet last week about record lows in 30-year gilts, index-linked gilts and interest rate swaps – adorned with the hashtag #hellfreezesover.

“But yields were supposed to rise this year!”, cries a traumatised pension scheme manager, with their graphs on gilt yield reversion lying in tatters around their feet.

Then there is the bogeyman of rising interest rates: no one is quite sure when the monster will arrive on the scene or the impact it will have.

Our latest edition of The Specialist, free to download in our iPad app, explores how schemes are preparing for a rising rate environment and where they are hunting for yield.

Illustration by Ben Jennings

Some are placing their hopes in alternative credit, comfortable they can take on the special risks of a private debt portfolio, for example, to squeeze those extra percentage points out of their fixed income allocation.

The truth is, no one knows when gilt yields will substantially rebound, or whether they will reach their previous heights over the timeline that matters to your defined benefit pension scheme.

The very phrases “new normal” or “new mediocre” seek to provide a crumb of comfort in a neutral forecast – we have had a little while of these conditions, who is to say we won’t have a little while longer?

“In the republic of mediocrity, genius is dangerous,” runs a quote attributed to the American orator Robert Ingersoll. It will be a brave pension fund who breaks from the pack.

Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.