GLOBAL – Goldman Sachs has estimated that pension schemes globally will remove some €250bn from equities – and buy around €150bn in fixed income.
“Pension reform is underway in Europe and the United States, and will undoubtedly have ongoing implications for the financial markets,” the firm said in a research note.
“Broadly these include changes in corporate valuation, asset allocation and rebalancing and flow of funds.”
“By making assumptions about a representative pension plan, we predict a considerable asset re-allocation on the back of pension reforms.”
It expects a flow of funds out of equities of around €250bn, and an increase in bond purchases of around €150bn. The comments come in a 39-page paper called “The Impact of Pension Reform on the Capital Markets” by Dambisa Moyo.
“We would expect pension funds to seek to buy longer-dated assets in order to extend their asset portfolio duration.”
Goldman has calculated the expected demand for long-dated bonds – arising from the need for schemes to close their duration gaps – as being more than $2trn. It says this estimate is conservative and contrasts with an expected issuance of $602bn across major markets next year.
“Pension reforms and pension-related hedging activity have already impacted the capital markets by contributing to lower long-end yields, a flattened yield curve environment, increased bud for long-dated swaption volatility, and a relatively depressed cash equity bid on the back of asset re-allocation.”
It said it expects this trend to continue in the “foreseeable future”.