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Consultants ‘block schemes in commodities boom’

GLOBAL – Buy-and-hold investors such as pension funds could be missing out on the commodities boom because of the “stumbling block” of investment consultants, according to Deutsche Bank’s top researcher in the asset class (adds further comment).

The current boom in commodities prices has seen three waves of money, Michael Lewis, the bank's global head of commodities research, said.

The first was from investors purely attracted by momentum. The second was macro hedge funds and the third was “insurance funds, pension funds and endowments” who look at the asset class as “fire insurance” in case the rest of the markets blow up.

But he suggested the time taken in due diligence by consultants means that pension funds may now have missed out on the opportunity. He told a briefing this was a “stumbling block” as consultants were the “gatekeepers” to investing.

“Today’s not the best time to go into a traditional commodity index,” he added.

Lewis pointed out that consultants have a duty to their investors to conduct the due diligence of commodities as an asset class and that they would be negligent not to carry this out.

Some European pension schemes, such as Dutch health care fund PGGM and metals scheme PMT have had their returns boosted by strong commodities returns.

Commodities are attractive because they are not correlated with stocks and bonds, the briefing was told. With returns for these asset classes currently “terrible” – with the outlook “miserable” – a different kind of investor was now looking at commodities.

“Investors are increasingly coming to see the benefits of this asset class,” said Daniel Raab, managing director at AIG Financial Products Group. He said there is around $50bn invested globally in commodities.

The briefing was organised by Dow Jones Indexes.

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