Europe’s largest pension fund the Netherlands-based ABP, with e150bn in assets, like many of its counterparts, is taking a long-term view of the events in the US. ABP has 38% in equities, 30% of which are North American so rather like any large funs with significant exposure to the US, market falls have taken their toll. “The overall impact on the portfolio isn’t very hard to guess but I don’t think that our situation is different from any other large institutions with a significant stake in global equities,” says Jan Straatman, CIO of global equities.
Predicting short-term trends, especially short-term trends triggered by such extreme events, is virtually impossible, but ABP expects to see a lot of extreme volatility that it predicts will last some time. “Obviously it is very difficult to estimate the impact in the very near term. As a long-term institutional investor though, we have to watch what the long term developments are in the market and focus very much on that in terms of setting our strategy.”
ABP made some small tactical adjustments albeit modest ones. “Our basic stance is that it is very unwise to take an active stance in periods when volatility is as high as it is now. Trying to guesstimate what fair share values are is something we do not want to burn our fingers on. Our main focus is on trying to identify what the potential impact will be.”
For the time being, long-term strategy remains the same. Straatman believes any adverse effects in the US will feed through to European markets and therefore a strategy of substituting US with European investments is perhaps self-defeating. “On balance we do not think that these events justify any major changes in regional allocation,” he says. Still, senior management at the fund is meeting daily to try and make sense of the long-term effects.
Straatman predicts that most of the negative impact is already reflected in the current market valuations and that despite sentiment across the US and Europe taking a battering, the long- term prospects are not dire. “We think that, although we are expecting a negative influence on the overall economic influence in the mid-term, we don’t see an extreme negative impact on the long-term trends of the economy.”
Straatman is full of praise for the relevant financial authorities and the way they have handled the crisis. “They are taking a very proactive stance in terms of using interest rates and the correct monetary stimulus. They used the right policy and the right instruments in order to stabilise the environment.” Barring any further disaster, the stimulus already provided and the willingness of other monetary authorities to lower interest rates in the right approach and an approach that Straatman believes may even produce a positive effect in the long term.
The decision by the European Central Bank to cut rates also sent out the right message. Not doing so would have appeared very negative and shown a lack of solidarity. “Co-ordination of the actions was one of the most important signals that was given to the market,” he says.