Austrian occupational pension management firm Valida plans to increase its exposure to alternative investments, chief investment officer Arnd Münker told IPE.
Valida has already started to build up investments in alternatives to counterbalance an expected reduction in returns from the ‘classic’ fixed income market, he said. It will continue to adjust its portfolio with alternative investments in mind in the coming months.
The response of central banks to the COVID-19 pandemic, with “extreme expansion of liquidity and a new version of bond purchase programmes” has exacerbated distortions within the bond market, he said.
If interest rates were to rise, Münker added, fixed income markets would come under even greater pressure, with rising yields that would not only result in negative returns for bond portfolios but would lead to increasing default rates.
Investors have to adapt, and permanently change, their portfolios to new framework conditions, Münker said, adding that “Valida has already done a significant part of it. Without such a change, we believe it would be difficult to generate stable returns in the future.”
Valida believes that investments in many asset classes within the alternative investments spectrum can generate higher returns compared to fixed income, and contribute to diversified portfolios.
“It is important for us to select a good manager in order to be able to meet expectations. With accurately selected managers, we have invested in infrastructure debt, infrastructure equity, private equity, CTAs or CLOs and are currently planning a private debt mandate,” Münker said.
Valida’s assets under management rose by 37% from 2013 to reach €10.2bn in 2019.
Valida Pension, the subsidiary of Valida Holding managing Pensionskassen products, achieved an average annual return of 10.8% at the end of 2019.
The management firm of Vorsorgekasse products, Valida Plus, recorded a 4.57% return last year.
For Valida Pension (Penionskasse products), 50.2% is allocated to bonds, 29.2% to equities, 4.3% to real estate, 8.2% liquidity and the remainder in other investments.
The Valida Plus (Vorsorgekasse product) is split into two portfolios. The first invests 55.2% in bonds, 9.2% in equities, 7% in real estate, 26.7% liquidity and 1.9% in other investments. The second portfolio allocates 49.4% to bonds, 9.5% to equities, 7.6% to real estate, 32.4% liquidity and 1.1% to other investments.
The rising number of COVID-19 infections in the last part of 2020, potential lockdowns, political uncertainties such as the US presidential election and Brexit can take a toll on the development of asset classes.
Valida believes markets will continue to rely on the support of monetary and fiscal policies, but risks and uncertainties can contribute to volatility in capital markets.
“We have acted accordingly with caution in the current market environment and we try to adequately assess risk regardless of short-term market trends,” Münker said.