Pension Reforms in Armenia

Transcription

1 Pension Reforms in Armenia Joe McLoughlin Co-Head of Managed Portfolios GAM London Limited Ensuring the Pillars remain Strong! ~ Asset Management for the Long-Term 28 November 2012

2 GAM ~~ Global Asset Management GAM s culture and investment approach remains unchanged London Formed in 1983 An INDEPENDENT asset manager An ACTIVE asset manager - distinctive, performance-driven investment culture Los Angeles New York Bermuda Dublin Zurich Lugano Hong Kong Tokyo Public Company listed on Swiss Stock Exchange (Market Cap $2.1billion) USD 51.3 billion 1 in Client Assets across various investment strategies Source: GAM 1. The reported total AuM of GAM of USD 51.3 billion include cross-holding assets of approximately USD 4.6 billion in accordance with Group accounting policy, which follows the principles of the Swiss Financial Market Supervisory Authority (FINMA). GAM s assets under management without cross-holdings as at 30 September 2012 are approximately USD 46.7 billion. 2

3 What I Propose To Address Today 1. Suitable Investments for a Pension Scheme Characteristics & Risks 2. Portfolio Management of a Pension Scheme 3. Practical Implementation 3

4 Investing An Advantage. for the Long-Term Due to the long- Fortunately, term nature of Pensions their liabilities, can take typically a much longer Pensions term can view, and adopt therefore a longerterm approach potentially and tolerate tolerate more short-term more volatility than in the short-term, Private than Private Investors Investors Source: GAM 4

5 So, how should Pensions invest moving forward? 5

6 "Bonds always deliver excess returns" US Bills versus US Bonds, GAM calculations using Federal Reserve data 6

7 Some believe "Bonds always deliver excess returns"...or perhaps not.. US Bills versus US Bonds, Source: GAM calculations using Federal Reserve data 7

8 Investment Opportunities in an Uncertain World What should a Well-Diversified Portfolio Include? 8

9 Financial Investments As Predictable as the Weather? Very Rainy Rainy Fine Warm Hot 9

10 1 Global Equities 10

11 Frequency Equity Performance: Components & Characteristics % Manager Skill Volatility: 16% Mean is positive but distribution has Fat Tails. Difficult to predict monthly outcomes Equity Risk Premium Inflation Real Equities Negative 0 Monthly Returns Positive Source: MSCI

12 US Equities from 1965 to 1982 barely passed 1,000 From 31 Dec 1964 to 31 Dec Years Dow Jones Index at 1,000 Source: Bloomberg 12

13 Here Today Here today, here tomorrow! Tomorrow! 13

14 A Long-Standing Equities Manager Performance from 30 Sep 1998 (inception) to 31 Oct 2012 Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, MSCI 14

15 Identifying Pockets of Structural Growth AgFlation FuelFlation Metals & Mining Water Transportation Real Estate Example Seeds and equipment prices driven by strong demand, supply issues Sector examples Extraction costs, EM demand help oil services and equipment Sector examples Underinvestment, EM demand help equipment and materials input Sector examples Scarcity and quality encourage irrigation, filtration specialists Sector examples Regional bottlenecks put premium on equipment, logistics Sector examples Constrained offcampus and urban rental housing Source: Manning & Napier Advisors, LLC Allocations and holdings are subject to change. 15

16 2 Government Bonds and Corporate Bonds 16

17 Frequency Fixed Income Performance: Components & Characteristics % Manager Skill Default Premium Manager Skill Volatility: 4.5% Mean is positive and monthly returns exhibit a high level of predictability Horizon Premium Horizon Premium Inflation Inflation Real Real Government Bonds Corporate Bonds Negative 0 Positive Monthly Returns Source: Citigroup

18 Fixed Income Gains are Quite Stretched 31 Dec 1985 to 31 Oct 2012 Past performance is not indicative of future performance. Source: Thomson Reuters, CS First Boston Corporation 18

19 USD billions Expanded Universe of Corporate Bonds Data from 31 Dec 2004 to 31 Jan x larger x larger x larger Credit default swaps Corporate leveraged loans Corporate bonds Latest data available at time of production. 19

20 Catastrophe Bonds Niche Area of the Bond Market Performance from 1 Dec 2004 (inception) to 31 Oct 2012 Tropical storm Isaac Japan earthquake Hurricane Katrina Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, MSCI 20

21 Opportunity 3 Traders 3 Alternative Investments 21

22 What do I mean by Alternative Investments? Traders (not Buy-and-Hold ) of : Commodities Currencies Bonds Highly liquid investments Typically lower risk than equities Manager skill is key success factor 22

23 Frequency Alternative Investments: Components & Characteristics Volatility: 6% % Distribution positively skewed with limited downside deviation. Infrequent negative outliers Manager Skill Source: HFR Alternative Investments Negative 0 Positive Monthly Returns 23

24 GAM Alternative Investment Fund Performance from 29 Apr 1997 (inception) to 31 Oct % per annum 1 Russian Debt Crisis 29 Jun 1998 to 31 Aug % -13.2% +5.2% per annum 2 Tech Bubble 27 Mar 2000 to 30 Sep % -46.9% 3 Credit Crisis 27 Aug 2007 to 9 Mar % -53.6% Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, MSCI 24

25 4 Tactical New picture tactical 25

26 The Tactical investment Management dilemma of the Portfolio Market Dynamics Macro-Economic Cycle Interest Rates Inflation Demographics Geo-Politics Investor Sentiment Asset Allocation Equities Government Bonds Corporate Bonds Commodities Currencies Hedge Funds Cash Underlying Investments Global Research Due Diligence Best of Breed Ongoing Monitoring Active Rotation 26

27 So much for theory So much for the Theory 27

28 The 1. Market BIG picture. Dynamics Not so obvious. Limited growth NEGATIVES in the ~ West Western Debt Levels Deficits EURO and Greece, debt Spain etc Sovereign defaults Low GDP Growth Oil price spike Inflation / Deflation Inflation High develop Unemployment and emerging Low Yields Persistent unemployment Political unrest Half Empty Half Full POSITIVES ~ US market improving Emerging Markets demand Strong corporate activity Investor wall of cash 28

29 2. Asset Allocation Input from specialist managers Investment Committee Input from GAM Investment Strategy unit Asset Allocation Cash Bonds Equities Alternative Investments Market Selection USA Europe Asia Underlying Investments Best suited to market conditions and client s requirements 29

30 3. Underlying Investments - GAM Manager Research GAM Manager Research 81 people** Investment Management Committee (IMC) GAM Management Committee Chief Investment Director Investment Analysts*** (13) Strategic Partnerships Portfolio Manager Investment Teams and Support Risk Analysts (4) Portfolio Managers (6) Investment Support and Research (9) Risk Manager* Operations Professionals*** (10) Deputy Head of Operational Due Diligence Head of Operational Due Diligence 3 Operational Due Diligence Managers Quantitative Analytics IT Development Dealing Administration 31 People Source: GAM. Data as at 31 Oct 2012 * The Risk Manager has a dual reporting line into David Smith, Chief Investment Director and Scott Sullivan, Group Head of Legal & Compliance. ** Includes IT, quantitative analytics and dealing support *** Includes employees who are temporary or on maternity leave. 30

31 How might a Diversified Pension Portfolio look? Asset Split X% Domestic Assets Y% Global Assets Globally Diversified Investments Equities Corporate Bonds Sovereign Debt Alternative Investments Developed Markets Emerging Markets Government Bonds Local Equities Corporate Debt Source: GAM 31 31

32 How and How Not to manage the assets Equities Alternatives Bonds Equities Bonds How Not To: Set In Stone Alternatives How To: Dynamic Other 32

33 THANK YOU Any Questions Please?