Managing risk, not returns, could be the focus of asset allocation in the next 10 years forcing a change in the construction of portfolios, according to fund executive speakers at the recent Pimco 10-year client conference.
Terry Newson, chief executive of Future Plus, said retirees are worried about risk. “They want a product in retirement that manages volatility but doesn’t give up a lot of return,” he said. The solution could be a different way of approaching asset allocation in order to control risk, and removing constraints on the portfolio. “Constraints should be minimal, a liquidity constraint and a cost constraint and then put together a group of strategies to control volatility,” he said. Newson predicted in the future there may be more passive mandates in liquid market strategies so funds could use their money to chase alpha in the illiquid markets. Rob Mead, head of portfolio management at Pimco, said the robustness of markets had meant there has been one way traffic for a long time, but with fund flows potentially slowing there may need to be investment in different types of products.
The brunt of losses from the LA wildfires are expected to be borne by primary insurers and high-risk reinsurance programs, but super funds are nevertheless closely monitoring the possible impact of the fires on catastrophe bond and insurance-linked securities exposures.
Simon HoyleJanuary 17, 2025
