Following the Bank of England’s (BoE) emergency intervention announced on 28 September to stem the sell-off of long-dated UK government bonds, UK defined benefit (DB) pension funds were kept busy, as falling Gilt prices over the past weeks caused mark-to-market losses in liability-driven investment (LDI) strategies.
There will be winners and losers in the recent crisis so there is an immediate requirement to review operational resilience and governance. However, these kinds of market events are also an opportunity to review journey plans, investment strategies and endgame – for which some schemes might actually be closer than before the crisis, which requires a re-think. Now more than ever, it’s important for trustees and corporates alike to reset the dial and ensure they are better prepared for the future.
And many investment consultants and asset managers – particularly those with UK businesses – are trying to navigate the foggy investment road ahead, which many believe will continue for some time.
Aviva Investors, for instance, expects most developed economies to experience recessions over the coming year, as global central banks continue to tighten monetary policy in order to address persistently high inflation. The firm remains underweight government bonds and high yield, with investment grade and higher-grade emerging-market debt preferred alongside a heavy long dollar overlay.
Candriam, the asset manager best known in the sustainable investment arena, plans to review and rewrite its defined contribution (DC) strategy. As hard as it is to break into a space already dominated by large established DC houses such as Legal & General and BlackRock, the manager believes there is potential in the DC marketplace.
Furthermore, enabling occupational schemes to take advantage of long-term illiquid investment is one of the UK government’s key priorities. With more members enrolling in DC schemes thanks to automatic enrolment and with the scale of assets invested in DC expected to double by 2030, it is right that trustees and managers now consider investing in a broader range of assets as part of a diversified portfolio.
Over the past few months, central banks have been aggressively pursuing hawkish monetary policies. However, their capacity to further implement quantitative tightening may prove to be limited in light of the risk to financial stability that has been seen recently.
Venilia Amorim, Editor, IPE.com
venilia.amorim@ipe.com
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