Pension funds cautious about GTAA
GLOBAL - Adding a global tactical asset allocation (GTAA) mandate to a portfolio is still a question of money, belief and regulation, according to pension funds.
Retirement vehicles remain cautious on the relatively new investment concept but asset manager officials such as Adam Lessing, head of European business development at Morley, have praised GTAA as "essentially portable alpha" which "can be packaged in any way that suits the client including UCITS or hedge funds".
"Tactical asset allocation takes part of your risk budget," noted Edwin Meysmans, managing director of KBC Pensioenfonds, which was multiple winner at the 2007 IPE European Fund Awards.
"We have to decide what to use the risk budget for and in times of underfunding it is hard to explain to trustees why you are using it to deviate from your strategic asset allocation."
Speaking at Opal's Institutional Investors' Congress in Vienna, Lessing agreed with Meysman, but in part stressed funds should not use GTAA unless they have "a very strong risk control".
However, he pointed out current market conditions provided good chances for tactical asset allocation.
"In times of higher volatility, returns from beta are lower and there are more opportunities in the GTAA space. Tactical asset allocation did not make much sense in the 1990s when we had high returns from beta and strategic asset allocation got you a long way."
Christian Böhm, head of the €2.3bn Austrian Pensionskasse APK, is of the same opinion but warns "pure portable alpha returns are not for the longer-term".
Søren Dahlgaard, group chief financial officer at Nordea Life & Pensions also noted with GTAA it was important to "be very clear on your position in the market" as well as "being modest about how often you act".
"But the possibilities do exist," he added.
Meysmans, meanwhile, is a little more cautious: "You have to believe in market-timing and the existence of uncorrelated strategies or assets. Market-timing does exist but it is hard to get and as for uncorrelated assets; it seems that in bad times when you need it the most everything is correlated," he pointed out.
He also believes there is a more practical problem pension funds must face with GTAA, namely regulatory obstacles and lack of knowledge.
"Any GTAA strategy will use derivatives but for example our board of trustees still feels uncomfortable to use derivatives for other purposes than LDI," he explained.
Meysmans added "the same goes for shorting and leverage" which were often used by managers on such briefs and with some of these strategies there was also a regulatory problem.
"Regulators - without pointing at any in particular - are having a hard time to define what is good for the customers so they are only looking at what could be bad for them and regulate that," Dahlgaard noted.
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