IPE SEMINAR - Asset managers say pension funds should ask a lot of questions on managers' approaches and general market assumptions in times of crisis, in order to make the right investment decision.
Speaking at an IPE Awards seminar in Barcelona and on pension fund management during the crisis, Neil Dwane, CIO Europe of RCM - an Allianz Global Investors company - told delegates: "Anything opaque, anything the manager cannot explain or anything done with leverage should not be in portfolios going forward, as well as managers making promises of very high returns which they cannot keep."
Michel Vanderelst, global head of institutional saes at Dexia Asset Management, said he would even go a step further and urged funds not to take concepts like market efficiency, market pricing and valuation for granted.
"We see it all much clearer now, so why did we not see it before? We underestimated risks and believed too much in the concept of market efficiency," he noted.
He added decorrelation of asset classes was overestimated and liquidity risk had been forgotten, with damaging consequences.
"Now we need to find mechanisms that can compensate and stimulate pension funds to go into asset classes when prices are extremely low," noted Vanderelst.
He suggested this could help to reduce risk as current legislation forcing pension funds to reduce risky assets in times of crisis was instead reinforcing risk.
"This does not reflect the real long-term view, which is also not reflected in many consultants' advice," he added.
But Peter Preisler, head of EMEA at T. Rowe Price GIS, warned "volatility has reached a level where the cost of long-term is catastrophic".
"Equities looked like a good opportunity two weeks ago but now most indices are down another 20% - and this is not the biggest downside we might yet see," said Preisler.
He advised pension funds to "stick as close to strategic asset allocation as best as they can in the short-term and do a re-evaluation when we know what happens" though Vanderelst stressed this was "not an end-of-the-world" scenario and "there are opportunities".
Dwane said he also believes in the power of emerging markets and forecast in 2010/11 "it will be the emerging markets growth which will get the US out of the trough".
Preisler is less convinced, however, as he believes "China will help but the root of the crisis is in the US, and we have to look to the US housing market and not put too much faith into emerging markets."