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IPE special report May 2018

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Consultants blamed for asset-liability problems

GERMANY – The problem of pension fund assets showing little relation to liabilities is mainly due to consultants, according to a top executive at Deutsche Asset Management.

Bernd Scherer, head of DeAM’s the advanced applications group in Europe, says that the “core” of the current pensions crisis was not that assets fell – rather it was caused by consultants who focused on actuarial issues.

“The problem is that assets often showed little relation to liabilities at all,” writes Scherer in an investment essay. “This has been caused mainly by consultants who focused too much on an actuarial view on long-term asset management.

“In the future consultants will need to take more care to establish the relative riskiness versus the long run liabilities for a given assets mix rather than focusing on asset-only solutions.”

“As a direct consequence we will see a permanent reduction in equities by institutional investors in exchange for fixed income investments (possibly corporate bonds).”

Scherer said that asset managers also need to change, and he called for a shift to liability benchmarks from broad-based market benchmarks.

He concluded: “What is required is not a new investment paradigm focusing on a nebulous idea of what long run means but rather a rigorous adoption of key investment ideas well known in academic finance.”

Scherer’s comments come in an essay called “Rethinking Asset Management: Consequences from the Pension Crisis”. The essay is one of 20 collected in a new book from the European Asset Management Association, which is called “Boom and Bust, the Equity Market Crisis – Lessons for Asset Managers and their Clients”.

At a conference earlier this week the head of the EAMA called on managers to get closer to clients and take the initiative in taking an active role. "We have to get closer to our clients," said EAMA president Klaus Moessle. "We have to insist that consultants are not the only ones to advise clients."

The 203-page book is published by EAMA and is dedicated to Michael Haag, the body’s secretary-general, who died last month.

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