UK - The University Superannuation Scheme (USS) did not reshape its portfolio of "risky" assets following the market turmoil of recent months, its chief investment officer (CIO) has said.
Moon told Global Pensions: "I think we read the crisis quite well, so we did underweight equities last year, but within our investment strategy. That means we still have 90% of our portfolio invested in risky assets."
Besides seeing losses on their equity holdings and on other assets, Moon said USS suffered "modest losses" also in its allocations to money market funds, pointing out only a few survived Lehman's collapse unscathed.
In line with its investment approach, Moon said USS was forming an investment team which could implement the fund's plan to invest directly in hedge funds. Currently, he said, USS had an exposure to hedge funds through replication products (globalpensions.com : 26/03/08).
Echoing Wim Barentsen's, APG's chief strategist, comment that the alpha was "often hidden beta", Moon said: "We are going to approach any direct hedge fund allocation very cautiously. Alpha is very difficult to achieve."
In his speech to the audience, Moon also said investors had started to question the reliability of benchmarks and that risk measurement tools were very likely to be revisited.
Barentsen emphasised that valuations would be at the core of the debate generated by the crisis, as he believed assets had been generally overvalued during the last two years.
He added: "Dynamic asset allocation and risk budgeting are potentially powerful additions to portfolio construction."
In his conclusions, Barentsen also pointed out the importance of market timing and how patience played a role in driving the most effective investment decisions.
However, Leonie Bell, managing consultant, Oxera Consulting Limited, said: "Pension investment policy cannot be structured around the benefit of hindsight and ability to time the market. There is the need for a pre-defined, suitable investment strategy."
Bell pointed out that investing in equities can deliver higher returns at comparatively low risk, given a long term investment horizon, as volatility of annualised returns and the risk of negative equity returns falls significantly as the holding period increases.
She concluded: "Pensions are for the long term, so we need to avoid short term choices, whose price we will pay in the future."
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