GLOBAL - A correction in the commodities market is giving pension funds a chance to increase their allocation to the asset class, providing additional portfolio diversification and inflation hedges.
He said: "People decided that the downward trend in oil is over and put money back to work on the long side."
Nicholas Brooks, head of research and investment strategy, ETF Securities, added: "The correction that we have seen over the past two weeks for a long term investor like a pension fund definitely provides some opportunities."
The US$231bn California Public Employees' Retirement System currently invests $1.4bn in commodities, less than 1% of the total CalPERS value.
Brad Pacheco, spokesperson for CalPERS, said the pension fund's commodity investments were part of a larger portfolio of inflation-linked assets such
as timber, inflation-linked bonds and infrastructure that provided diversification. He agreed the current market had provided opportunities for investment.
Ali Lowe, CIO, global asset allocation and currency, State Street Global Advisors (SSgA), said some pension funds would see this period as a better
entry point for increasing their allocation.
He added: "We, and many pension plans, believe that commodities and other inflation protecting assets should be part of a strategic asset allocation
as they provide real diversification in periods of rising inflation when equities and bonds do badly."
Maggie Ralbovsky, managing director, Wilshire Consulting, emphasised the importance of strategic investment.
She said: "Because commodities are inputs of the global economy, an upward trend in commodities prices will put upward pressure on inflation.
"Since inflation is the biggest enemy to pension funds and other long term investors, we strongly believe that inflation hedging allocations are
essential to every institutional portfolio.
"We cannot predict the cyclical price movements. Market timing is rarely successful. We therefore advocate investors taking a long term perspective and making a strategic allocation."
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