GLOBAL – While the focus on alternative asset classes is warranted, pension funds need the right in-house structures before they can fully reap the rewards, according to the World Bank Pension Plan’s chief investment officer Sindo Oliveros.
“Pension plans need adequate staffing/skill mix, robust risk management and long-term committed boards to absorb the value that alternatives can offer,” said Oliveros.
He was speaking yesterday at the 2005 IPE Awards seminar in Berlin.
According to Oliveros, the long-term challenges facing the industry are also spurring on major changes in asset management and the redefinition of traditional assets.
These challenges include global underfunding, the inversion of the population pyramid and stress of government pension insurers, such as the UK’s Pension Protection Fund (PPF).
While Oliveros called bodies such as these a “well-intentioned response” and sensible for the long-term health of the industry, he added that they also add immense short-term pressures.
He stated that markets would be key catalysts for change. He explained that markets would “force change” against the need to bring in better returns.
Going forward, Oliveros added that pension funds needed to establish a “true” ALM framework, the unbundling of alpha and beta generation, and instil a long-term horizon into pension governance.
The World Bank Pension Plan has €11.5bn in assets under management according to ‘International Pension funds and their advisers’, roughly 15,000 members, and 25% asset allocation in alternatives, including hedge funds, private equity and real estate.