IPE Awards: 'New normal' means shift to short-termism
EUROPE – If fundamental value drivers are no longer functioning, then investors must consider short-termism to generate the desired investment returns, Amin Rajan, chief executive of CREATE-Research, has told the IPE Awards Seminar in Copenhagen.
Ahead of a panel discussion on whether volatility was a friend or foe to investors, Rajan said he had changed his views about short-termism in the wake of changes to the global economy.
"The point is, the fundamental value drivers are not working – there is a lot of noise in the market," he told attendees.
"If that means short-termism, so be it. I don't advocate short-termism myself, but I think it was Keynes who made the point that when facts change, you change your view."
However, his view was not shared by Peter Hansson, head of Sweden's SPK Pension Fund, or Timo Löyttyniemi, managing director of Finland's Valtion Eläkerahasto (VER).
Asked how the defined benefit fund's investment approach had changed over the past few years, Hansson said: "I would say we hold on to our long-term strategy – it's a strategy where we are very much hands-on [for] day-to-day monitoring [and] whether or not we should reduce risk and add on risk."
Asked by Rajan whether SPK re-balanced its portfolio for investment opportunities, Hansson said the fund did not pursue such a strategy.
"We could go into the volatility game, and, of course, we have changed – so we have a low-volatility structure in some assets instead of traditional assets – but, apart from that, we are waiting out to see what happens to the regulations," he said.
Löyttyniemi pointed out that, as a benchmark-driven investor, it was not in VER's nature to pursue short-term gain.
"Our normal decision is not, perhaps, to think beforehand whether the market is warming up or not," he said.
The discussion would instead be about whether or not to re-balance the benchmark.
He said this was exactly the decision the fund faced in the wake of the 2008 market downturn.
"We increased equity risk and credit risk," he said, "but it was easy for us because we had a benchmark structure that incentivised us to be a buyer in the market."
He said that, in a situation where a new asset class emerged as worth considering, the fund would still go "step by step", and not invest immediately, in case it was only a one-year spike.
"If it was a two, three-year trend, then we would increase the allocation to that asset class steadily throughout that time – that's what we did for emerging market debt, where we went from zero to nearly 15% of our fixed income portfolio," he said.
Löyttyniemi added that, for the most part, volatility was only a "technical measurement".
"I would rather look at if the returns are good, I don't have [problem] with volatility," he said. "But if the returns are lousy, I really hate it."