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Greek uncertainty remains key issue, pension funds admit

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The decisive rejection of Greece’s bailout conditions spells uncertainty and could see the introduction of a parallel currency in the country, the asset management industry has warned.

Hours after the Greek electorate voted ‘No’, backing the stance of Alexis Tsipras’s government, some of Europe’s largest asset managers refused to be drawn on the market risks.

APG’s CIO Eduard van Gelderen said, through spokesman Harmen Geers, that, as a long-term investor, it was “not appropriate to comment on short-term developments”.

Lombard Odier Investment Managers questioned whether Greece’s exit from the European Union could be possible.

The company’s global strategist Salman Ahmed noted that, unless the creditors comprising the IMF, European Central Bank and EU reassess their previous negotiating position, it increased the risk of Greece’s leaving the single currency.

“At the top level, the EU will now have to decide if allowing Greece to lurch out of the European project makes sense, given the strong question mark such a development can raise on the irreversibility of the union,” he said. 

“After all, let us not forget Greece makes up less than 2% of euro-zone GDP and has an economy that is smaller than the size of Milan.”

However, according to the €189bn Dutch asset manager PGGM, the referendum outcome has hardly changed its view.

The manager said a dedicated ‘Greece team’ was closely monitoring developments, and that clients were briefed on a daily basis.

“Uncertainty remains the key issue,” it said. 

Uncertainty surrounding Greece’s ability to service its debts was also an area highlighted by Columbia Threadneedle’s head of asset allocation Toby Nagle, who questioned whether the ECB would be able to continue offering emergency liquidity assistance (ELA) to Greek banks. 

“As things stand today, our base case is that the Greek government will be unable to service its ECB debt on 20 July and the ELA will at that time be cut off, requiring the circulation of a secondary currency and reducing exponentially the prospect that Greece will continue to be a full member of the euro-zone,” he said.

“Indeed, even ahead of 20 July, there remains a risk the banks run out of cash under the ECB umbrella, speeding up the process further.”

Stephanie Flanders, chief market strategist for Europe at JP Morgan Asset Management, said Greece’s departure from the euro-zone would be costly for tax payers, not least because of the losses suffered by the ECB.

But she also warned it would re-shape the universe for institutional investors.

“It would have important long-term consequences for the euro-system and the future risk premium on euro-zone assets,” she said. 

However, like others, Flanders believes the contagion from Greece’s exit could be contained.

“In theory, at least, the ECB also has much more effective tools available now to deal with any tightening of financial conditions that results from the Greek vote,” she said. 

The fallout of the vote has nevertheless impacted the funding of Dutch pension funds. 

Dennis van Ek, actuary at Mercer, said that, around lunchtime, the 30-year swap rates had dropped by 4 basis points to 1.72% since Friday-end, and that European equity markets had dropped 1-1.5%.

As a result, the average coverage ratio has fallen by approximately 1 percentage point since Friday and would currently stand at 109%, he estimated.

He placed the official ‘policy funding’ – the criterion for indexation and rights cuts – at approximately 107%.

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