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DeAM calls pension fund expectations 'unrealistic'

GLOBAL – Financial assets around the world are likely to generate lower returns in the future than investors have come to expect and this could have serious consequences for pension funds, since their valuations are based on unrealistic expectations, claims a new Deutsche Asset Management (DeAM) report on long-term asset returns.

Joshua Feinman, the report’s author and DeAM’s chief North American economist, says that equities in particular have been unusually high in the last twenty years but this will now change. “Financial asset returns over the long haul are going to fall well short of what investors became accustomed to in the 1980s and 1990s. Equities in particular will not be able to deliver such returns,” he comments.

The report suggests that the fall in the rates of return for both equities and bonds will lead to investors in pension plans having to consider adjusting their expectations, start contributing more to their plans or look for alternative means of investing.

DeAM’s global chief economist, Steven Bull, says that the lower return environment translates into heavier funding requirements for pension funds, particularly when transaction costs and management fees are taken into account. “Falling equity process and falling prospective asset returns mean that many pension schemes may now be underfunded. Many companies have accepted that their pension contribution holidays are over. They may also have to accept even higher contributions than they previously planned,” he warns.


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