Pension funds cover the table

May 22, 2012

As gloomy first paragraphs go, you’d have to go some to top Schroders’ Jonathan Smith’s introduction to a report touting his firm’s momentum investing offering.

“As the global economy continues to de-leverage, the next decade looks likely to be a period of weak growth and low interest rates, punctuated by bouts of heightened instability and crisis.”

Oh but hang on!, here’s Legal & General Investment Management having a go.

“The global economy continues to grind onward, but we don’t see this as a sustained trend: growth is fragile and remains vulnerable to shocks.”

Hmm.. too similar, call it a draw. And anyway, both are cribbed from the popular, and I think unattributed, quote that “war is long periods of boredom punctuated by moments of sheer terror.”

So how do you prepare to battle this unpredictable lost decade (aside from taking the hint and calling the Schroders and LGIM sales teams at the earliest opportunity)?

Well there comes some confirmation of sorts that longer-term investors are making some fresh moves to tackle inscrutable markets. Barings has found evidence of managers scurrying anew to spread their risk; diversifying assets and stepping up portfolio reviews in an effort to deal with volatility.

Of course, a poll from a fund manager which implies clients might be eager to buy more products, more often should be greeted with at least one eyebrow raised, but let’s hear them out.

Overall, Barings heard back from 92 investment managers running portfolios for British pension schemes, and about 30 of those had recently changed their asset allocation. Most had bumped up investments in ‘alternatives’ including property, hedge funds and private equity, with the next most prevalent moves to cut equities and debt holdings. When asked their motivation, the most popular answers were that the manager wanted to reduce volatility and reduce correlations in the portfolio.

Most of those polled had also dumped some of the underlying managers actually making the bets, mostly in response to underperformance or to adjust exposure, but a significant minority were attempting, again, to reduce volatility.

No surprise then that 83% of respondents said they were at least a little concerned by market volatility. No surprise either that euro zone debt issues stood out as the key driver.

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