UK - Schemes must overhaul their investment policies or face extinction, Deutsche Asset Management warns.
It fears the current bear market could last up to 20 years and claims the “very survival” of schemes is under threat because of pressure from sponsors, accountants, finance directors and government regulation.
Head of the firm’s global portfolio selection team, Stephen Barrow, said schemes must change the way they think about risk and drop concepts such as benchmarks and tracking errors.
Barrow – speaking at the firm’s client conference, Alpha in a Cold Climate – stressed that schemes should focus on volatility and their liabilities.
He also urged them to give fund managers longer periods of time and greater investment freedom to produce absolute returns. “We should all recognise the challenges of the ‘ice age’.
“But, like our friendly proto-apes, we have a choice: whether to stay up in the trees, hug benchmarks, and hope for some warmer weather to come along or whether to adapt our behaviour and venture out.”
As part of that change, Deutsche believes schemes must reconfigure their equity and bond portfolios and move money away from UK to global securities.
Head of UK fixed income Charles McKenzie said: “Why should a fund manager be restricted to buying what could be expensive corporate bonds in the UK market?
“Why not instead buy a bond from the same issuer in another market that is much cheaper and then swap the cashflows?
“By doing this we increase returns by buying the cheapest corporate bonds around the world but then use swaps to convert those unwanted global cashflows into your required UK cashflow.”
Hewitt Bacon & Woodrow investment policy group chairman Kerrin Rosenberg agreed.
He said: “There’s no additional cost of doing this. So by doing so, schemes will be ‘widening their scope’ for adding.”
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