Funds Congress Highlights

Investors face a paradigm shift in asset allocation strategy as structural adjustments in the investment landscape present new opportunities in the fixed-income and private markets. Tailoring asset allocations to specific pension fund needs remains crucial, while investor intuition remains an important factor in spotting opportunities during periods of market stress.

Investor preferences amid a shifting landscape: Asset allocation remains one of the most critical factors in determining success or failure for investment funds. As the sun sets on a decade that has proved remarkably generous to the pensions industry, investors should assess the extent to which their needs and preferences may evolve as the tailwinds that have proved so helpful for so long morph into challenging headwinds.

Diversification and evolving markets: With their eyes focused resolutely on the long term, pension funds have learned how to remain undisturbed by the clamour of politics and the distractions of the short term: positioning a portfolio for geopolitics, after all, is nigh on impossible. Yet as funds redesign their portfolios in search of the robustness needed to withstand the challenges of the coming decades, the diversification agenda – so important in a world in which traditional bond/equity correlations have largely fallen away – will remain front of mind.

Structural shifts: The good news, funds report, is that promising new opportunities abound, particularly in the fixed-income and private markets, which seem set for spectacular growth in a world retooling for the zero-carbon transition. Increasingly wary of growing volatility in the public markets, investors’ growing preference for alternatives is driven, too, by the search for scale: companies that once resorted to private funding to plug gaps can now finance landmark deals without any recourse to public markets. Despite the recent LDI and real-estate crises, greater comfort among investors with ever-higher allocations of illiquid assets has only accelerated the trend.

Tailoring allocations: Asset decisions remain heavily dependent on pension funds’ membership profiles, scheme types and funding needs, of course; what works for one may not work for all. Asset and liability management techniques can provide a useful lens on tough allocation calls, but, despite technological aids, there’s still a role for good old-fashioned investor intuition. Opportunities arise through crisis, after all: nimble footwork can pay handsomely when assets come under stress and nervous investors flock to the exits.