IRELAND - Irish pension funds should increase their asset weighting in bonds to better reflect European investment levels in the asset class, according to AIBIM.
Quoting recent statistics, AIBIM head of fixed interest JJ Walsh, said the typical Irish pension fund has 75% of its portfolio invested in equities and 15% in bonds, but predicted regulatory change could spark an increase in bond weightings.
But he warned now was not the time to buy, flagging a fall in bond prices in coming months.
Speaking at the IAPF’s annual investment conference in Dublin this week, he said: “Irish funds need to increase their bond weightings toward European levels. Bonds are the best match for pension fund liabilities and when bought at the right time, also offer the best returns for trustees.”
However Martyn Hole, senior vice president at Capital International, disagrees.
He says people overestimate the volatility of equities and pension funds should invest “the vast majority” of their assets in equities.
Jeff Chowdry, director at F&C Asset Management, argues the case for emerging markets claiming Irish pension funds are “chronically underweight” in the asset class.
“Emerging markets are the future,” he declared. “Given the ageing population of the developed world, whereby one in four people will be of pensionable age by 2030, there is a desperate need for pension funds to enhance returns in order to meet the increasing burden of future liabilities.”
He added: “Increasing domestic consumption, improving demographics, flexible exchange rates, increasing FDI, reduced levels of debt, improving corporate governance and a further reduction in trade barriers all support the idea that emerging markets can outperform.
“By 2040, the combined GDP for the four main emerging economies – Brazil, Russia, India and China, will equal that of the G6, whereas at present it is about a tenth of the size.”
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