Multi-Asset strategies for Pension Funds - Global Pension Symposium -

Transcription

1 Multi-Asset strategies for Pension Funds - Global Pension Symposium - Raphaël Sobotka Global Head of Multi-Asset 10 November 2015

2 Multi-Asset Role for Pension Funds What is the purpose for Pension Fund to invest multi-asset product? Delegation of Tactical Asset Allocation removing pressure on institutions to move assets tactically or open/ close new asset classes Delegation of Specific Outcomes: Liability matching, growth-seeking, cash/ inflation +, Can be customized (e.g. risk-budget, new asset classes, open/ close architecture) and is quite cost efficient relative to the specialist route Knowledge transfer/ sharing enabling better decision making at the overall institution level (positive externalities). How to categorize Multi-Asset Strategies? Multi-Asset for Institutional clients should be categorized By asset classes (dominant asset class or look-through asset mix) By Outcome: Growth Seeking, Yield Plus / Absolute Return By Performance engines: directional or idiosyncratic for instance How client set up risk/ return level of multi-asset product in their portfolio? Benchmark relative: set risk limits to avoid impacting the overall portfolio risk profile Outcome orientation: set risk limits in accordance to each goal 2

3 Main issues for European Pension Funds Challenge Need asset growth given deficit: UK: 82% funding Netherlands: 43% underfunded Germany: 61% funding Complex constraints ALM, Regulatory, Operational, HR concerns Protect downside High Equity volatility, Low Bond Yields Shift of DB to DC 29% DC in the UK Shorter investment cycle 58% of plans with once a year review Multi-Asset as an answer 20%+ use Diversified Growth funds Use of Fiduciary Manager: 23% of plans Risk parity, Factor Investing: 3% of plans 20%+ use Diversified Growth funds (inc. AR) Default option for DC Target date funds, AR, Diversified Growth Funds Multi-Asset allows for: More frequent rebalancing 26% of plans use Multi-Asset with approx 20% allocation Sources. UK: PPF 31/08/15; Netherlands: pension funds with funding below minimum of 105% as per DnB 30/06/15; Germany: Mercer 31/12/14 Investment cycle, Fiduciary manager, asset allocation as per Mercer European Asset Allocation Survey

4 Multi-Asset in Europe: Departing from traditional balanced Alpha & Risk sources tend to be unbundled for clarity and transparency sake Don t try to outperform in each asset class. Absolute Return focus & Outcome Orientation Extract (Cross Asset) inefficiencies that cannot be targeted by specialists Even more cost efficient using index/ Smart betas Powerful portfolio construction techniques, to manage scenario dependency/ regimes shift 4

5 Multi-Asset Role: Case for Japan now Japan Pension Funds New Context: Japanese pension funds have not embraced (yet) new multi-asset (like in the UK, Netherlands today): DGF & Absolute Return They carry a lot more equity risk than in the past, they need to find more diversified growth exposure ( DGF ) Low Bond Yield everywhere, need to add some Absolute Return/ Yield Plus approach Their asset allocation that is more global & riskier: need advice/ knowledge transfer to support their governance Creating new needs: Major top-down players with strong research across asset classes. Well positioned as a cross-asset macro investor Institutional quality process ensuring repeatable outcomes and transparent to clients. Tight risk management to work with institutional clients Asset Allocation brainpower to support institutions governance Strong experience with European pension funds to design and manage bespoke solutions 5

6 European Case: What have been the difficulties? The Competition issue: Often perceived competition from pension fund investment officers seeing TAA as part of their job Or don t embrace knowledge transfer but see a potential yardstick of their abilities This issue decreases as regulatory/ legal pressure increase The Specialist route issue: Pension funds running the specialists approach don t like adding significant multi-asset portions alongside (i.e. hybrid ) But it has changed: DGF competing with equity & HF, Absolute Return competing with Fixed-Income 6

7 Combining Multi-Asset managers The Old way: Hire multiple multi-asset managers ( balanced ) With similar objectives running a horse race The New way : Categorization by Outcome: Growth Seeking or Absolute Return/ Yield plus orientation Differentiation in term of performance engines (focus on systematic risk sources/ idiosyncratic risk taking) Differentiation in term of investment process/ managers preferred habitats/ risk aversion 7

8 Assessing Multi-Asset Managers Concerning benchmark-relative strategies: Excess-Return/ Information Ratio vs benchmark over 3 years Excess-Return vs peers ( Horse-Race ) Concerning Outcome orientated strategies: Against strategy specific agreed target (e.g. Sharpe ratio for Absolute Return strategies) Against peers having similar goals Taking into account scenario dependency of each strategy 8

9 Risk-Management The Old way: No need to integrate all managers holdings since they all shared the same SAA and had tight risk limits The New way: Need to categorize as Equity or Fixed-Income Typically DGF as Equity substitute but more diversified Typically Absolute Return as a Fixed-Income substitute but riskier Many work as equivalent beta (equity/ credit) Some integrate regularly the asset/ factor splits into their own risk management system 9