GLOBAL - A majority of pension funds have claimed to be unfazed by the ongoing crisis in the US sub-prime mortgage market, according to the results of the latest Global Pensions 100 Panel.
Asked whether they were concerned by their fund's direct or indirect exposure to the US sub-prime mortgage market, 67% of respondents answered 'no'.
Only 21% of the pension funds surveyed admitted to being concerned, while 12% claimed the question was not applicable to them.
"We have minimal direct exposure to sub-prime mortgages," stated one respondent.
The source added:"We have indirect exposure in terms of the overall market reaction, but our plan focuses on long term growth and we have a stable value option to shield those who do not want to risk short term volatility."
Another stated: "We do not have exposure to sub-prime. [Our] fixed income portfolio is very high quality long duration bonds."
Yet another respondent claimed the way to avoid fallout from the sub-prime debacle was to "be diversified".
In the wake of the sub-prime crisis, questions have been raised over the creditworthiness of the riskier tranches of the asset-backed securities (ABS) market and managers' abilities to assess those risks.
Credit rating agencies have also been put in the spotlight, with some accusing them of misleading investors over the safety of collateralised debt obligations (CDOs).
However, the industry consensus mirroring the results of the Global Pensions 100 Panel seems to be that pension funds' credit portfolios are not necessarily at risk, since pension fund portfolios would tend to contain only the highest rated securities or include extra credit protection.
"You can make a AAA bond out of a sub-prime loan if you give it the highest credit protection," explained Michael Schlachter, a managing director at Wilshire Associates. "Assuming there's not default on a global level, if you're in the right tranches, you're ok."
Some respondents showed concern about the wider risks to their portfolio of the sub-prime crisis, as evidenced by the slump in the world's stock markets.
"We are concerned about the impact of the sub-prime loans crisis on markets generally, even though our managers advise little or no direct exposure," commented one pension fund trustee.
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