As many as 70% of pension funds surveyed for the latest CREATE-Research and Amundi AM paper on quantitative easing (QE) are calling on regulators to “reconsider what ‘risk-free’ investments” are.

Another 50% want “technical provision” rules to be more flexible.

And Amin Rajan, chief executive at CREATE-Research, agrees.

Speaking at the IPE Conference in Barcelona, he said: “We need to move from ‘technical provisions’ to a ‘best endeavour rule’ provision, where pension funds are facing the challenges the best way possible.

“You do not want to plan your route on the old navigation system that is no longer working.”

Rajan said QE was “the only option” the federal banks had to cope with the scale of the financial crisis in 2008 and argued that it helped to avert a full-scale crisis and stabilised the system.

He added, however, that QE had still failed to promote global growth and that its “unintended consequences were quite frightening”.

He said the US Federal Reserve’s exit strategy was creating “enormous uncertainties”, leaving pension funds in a “state of paralysis”.

According to Rajan, “pension funds have been hit by a double-whammy – the low interest rates on the one hand and rising liability maturity on the other”.

He said the whole industry was on a journey into the unknown, “much like Christopher Columbus, who did not know where he was going when he set out and did not know where he was when he came back”.

One major question, for example, is whether long-term bond rates will increase along with short-term rates, against prior experience.

“There are no golden rules in investing today – only an increased amount of common sense,” he said.

Rajan even went so far as to say that “conventional investment wisdom on risk, return and diversification has been weakened and turned on its head”.

Investing is “turning into a loser’s game, where the person making the fewest mistakes wins”.

But he applauded the pensions industry for “trying out new things”, both on the asset management and the “liabilities” side.

He called for a stronger alignment of interest between pension funds, asset managers and consultants and said ‘one-size-fits-all’ models had to be thrown overboard.

Rajan pointed to a “huge convergence of asset allocation in pension plans” because of QE and said the majority of pension funds think the measures have worsened their funding situation.

The central banks’ measures have also accelerated the personalisation of risk in pensions, shifting it “from people who can no longer manage it to people who do not understand risk”.

This, he said, was “leaving a stain on the industry’s reputation”. 

See Amin Rajan and Pascal Blanqué’s latest article, ‘The perils and promise of financial repression’, in IPE magazine