EUROPE - Liability-driven investment (LDI) is not a panacea for European pension funds or a profitable business for asset management firms, the head of a leading international asset manager has warned.
Todd Ruppert, chief executive officer of Baltimore-based T Rowe Price, said "While there may be value for some, nobody in the asset management industry is making any money on that. The investment banks are making a lot of money in that area and a lot of LDI has been pushed on people, primarily in the UK, on people who have just cried ‘uncle' when the investment banks came knocking."
"I don't think there's any silver bullet in LDI nor is there a silver bullet in alpha/beta separation. At the end of the day what pensions funds are saying is give us some fully invested, globally diversified, long-only product. That sounds pretty simple and pretty boring, but in the long run it works.
"So a lot of those LDI products around may be nothing more than bells and whistles."
Ruppert also cast doubt on the current trend for long-only managers to move into long-short equity management. "If you look at the history of long-only management most do not outperform the benchmark. The history of shorting is far far worse . So by putting some shorting into a long only portfolio you are magnifying the opportunity to fail miserably.
"I think there's going to be some blood out on the street there," he said. "The best way to run an organisation is to do what you're good at and don't move outside your comfort zone."