EUROPE - There will be no end to the US Federal Reserve’s low interest rate policy within the next few years, so returns from bonds and money market instruments will be insufficient to meet pension fund targets, according to Jens Ehrhardt, founder of multi-asset boutique DJE.

Speaking at the conference of the European Association of Public Sector Pension Institutions (EAPSPI) in Berlin, the head of the boutique house claimed should the US-Fed raise interest rates too early the whole economic rescue system would collapse .

“Quantitative easing is the new recipe for states to finance the state deficits which are currently the highest in Europe ever - in peace times - and that will lead to huge problems in the long-term regarding inflation but not any time soon,” suggested Ehrhardt.

He added: “Pension funds will have to search for other ways than bonds or cash to deliver the return their needed but this is getting harder and harder.”

When asked whether this outlook of a low interest rate environment will change pension funds investment strategies, Ehrhardt argued pension vehicles “will have to be much more flexible and fast in the markets”.

“This is not a time to invest in a buy-and-hold strategy, those times are over,” he added. (See earlier IPE-article: ‘Buy and hold’ pension strategies is over, claims banker

The new investment environment “is definitely a problem but many of us do not have a solution yet”, noted Wolf R. Thiel, chairman of EAPSPI and president of the German fund for public employees VBL.

One audience member at the conference disputed the arguments, and claimed the low interest rate environment was only true of Europe and the US. He claimed some investors could find the returns needed, at least over the short-term, in markets such as Asia.