Pensions 'must go back to basics'
EUROPE - European pension fund managers are predicting colleagues will simplify their investment strategies in light of the recent market turmoil, look for lower average returns and apply a "back to basics" approach to risk management in the future.
Gunther Schiendl, chief investment officer at VBV Pensionskasse AG told IPE in a recent video interview whereas the market has sought to deliver ‘innovations' in recent years to tackle pension fund management and asset allocation strategy, pension funds will instead return to fundamentals and seek innovation in core strategies. (Click on the above link to see the video clip)
"I think we will probably see the dawning of the classic age again; where pension funds will move back into classic assets - stocks and bonds," said Schiendl.
"We need to find out what is going on in hedge fund innovation. I think we are now going into the fourth generation and we are very curious to see what the products are there. I believe infrastructure is an important topic that will probably be captured in different ways than in the past. Risk management will be high on our agenda as it is with other financial institutions. But I believe we will go back to the drawing board before we have new innovations," he added.
In a separate video interview, Karel Stroobants, board member at Pensionfund Metaalworkers Belgium, also said it was necessary to go ‘back to basics' and at least target realistic returns for lower risk. (Click on the above link to see the video clip).
"I'm in favour of the words ‘keep it simple, stupid'. And we have seen so many innovations recently and finally they didn't help us out," said Stroobants.
"I really am convinced we have to go back to basics and mainly accept a lower expected return, go for less and then get good [returns] realised. It's like a colleague just said: don't aim for 8% expected return, go for simplicity and maybe after you have finished you will maybe have 6-6.5% with much less risk. I think that is the main thing we have to focus on," he added.
In contrast, Professor Amin Rajan, chief executive of Create, said in his video interview he believes while there will still be a need for innovation, trustees and pension executives perhaps need to reconsider which advice they follow and be more confident in their judgment. (Click on the above link to see the video clip)
"This crisis is like none other in our lifetime and I think this crisis has imposed a huge amount of pain on the pensions industry," said Rajan.
"I seriously hope that pension trustees would really do things differently in the future, particularly when it comes to the relationship with fund managers and the relationship with pension consultants. Pension trustees need to be much more vigilant, they need to be much more informed. They need to rely on an unusual degree of commonsense and they shouldn't really be guided too much by their advisers."
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