The investment chiefs of two major European pension funds told today’s IPE Summer Pensions Congress 2021 how the funds are composing portfolios to meet current needs, and declared themselves sure central banks could handling rising inflation – despite the fears spooking markets this year.

In the Investment Leaders Forum session this morning at the virtual conference, Alfredo Granata, CIO of Italian engineers’ and architects’ pension fund Inarcassa, outlined how the first pillar fund has shifted asset allocation towards private markets, but expressed faith in central banks where inflation troubled were concerned.

He said: “It’s not a matter of whether inflation will creep up – yes it will do – but the main point will be how much and for how long.

“And we are really confident the central bankers will manage this kind of phenomenon in the right way,” Granata said.

Meanwhile Poul Kobberup, CIO at Danica Pension, said in the panel discussion that the Danske Bank subsidiary had spent last year focusing on honing the bottom-up aspect of its portfolio.

“But from a strategic point of view, we try to have a steady hand on the way we structure our portfolios, so we are still committed to fixed income and inflation, but that’s only to cover that part of the portfolio that needs to be stabilising the equity portfolio and also the alternatives part of the portfolio,” he said.

On the question of the outlook for inflation, Kobberup said: “We are also quite confident that central bankers are doing their jobs right, and we are not nervous about seeing very rapidly increasing inflation from here on.”

But Georg Schuh, CIO Germany at DWS, said that though his firm’s view was that the inflation theme was mostly transitory, the team was a bit less confident than others that central banks would get it right all the time.

Forecasting of ECB policy had, however, become much easier now than years or decades ago, he said.

“So even if you are not sure about the inflation path, I think you can be quite sure that there won’t be central bank action at the short end for a long, long time,” he said.

This was because even before the COVID crisis, one had already been able to sense that financial repression was the only way to roll over all the debt problem and to secure the integrity of the euro zone, he said.

Post pandemic, according to Schuh, there were also other factors speaking against the likelihood of short-term interest rate rises, including the global mega trend of sustainability.

Looking ahead though, Clive Gillmore, CEO and group CIO at Mondrian Investment Partners, told the congress he saw downside risks ahead for markets because of government borrowing to deal with the COVID crisis.

“For me, the fundamental issue is if you look at stock markets, or the degree of euphoria that we’re just about to come out of the real dark days of COVID, you’d think everything was fabulous in the world,” he said, adding that this actually was not the case.

“At the end of the day, what we did is borrow a lot of money to get ourselves out of jail.

“If you invested in an individual security that borrowed money to sort out its problems, it may be able to survive with that debt, but it unambiguously increases the range of outcomes with a negative skew,” Gillmore said.

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