Michael BaileyRemember when they used to talk about ‘set-and-forget’ retirement investment strategies? Well, the time-honoured 70:30 is looking like another victim of these ridiculous times. “Take your strategic asset allocation, tear it up, sit down with a clean sheet of paper and a pencil. And an eraser.”That was the advice of Pippa Malmgren, an economic policymaker for no less than the George W. Bush White House, at a DB Advisors-sponsored Fund Executives Association luncheon last month.

In Pippa’s mind, at a time where strikes and riots are back, all the

Ukraine’s ATMs have run out of cash, and sovereign defaults are set to become everyday, you’re a fool to sit back and think that what worked for the last twenty years is going to work for the next twenty.

You need to get your portfolio a theme, says Malmgren. She’s got a couple that only seem outrageous when last year’s investment committee minutes aren’t lying in tatters at your feet. One of them is inflation. Yes, you read that right. Not of the demanddriven kind, but price rises that happen only when a lack of credit has choked off the ability to add any supply.

Commodity plays will be early beneficiaries of the related price hikes, Malmgren says. Her other theme is private equity (remember those guys?). Somebody has to repair the broken balance sheets, and Malmgren gives it about three years before some bourse, somewhere, plays host to an IPO.

“And I don’t care what it is, what industry it’s in, I will buy that first IPO because the amount of negativity it will have been through, the number of people telling them ‘IPOs don’t exist any more’, means that the quality of that IPO, by definition, will be extremely high.” An individual’s opinion is one thing.

But when Watson Wyatt – one of the biggest gatekeepers in Australia – comes out in a client note last month and says no fund should automatically rebalance to their SAA, you know the days of ‘set-and-forget’ really could be numbered.

However, I think the most important role for consultants over the next few months will be filtering the apocalyptic messages being directed toward their clients’ investment committees.

Pippa Malmgren was no doubt just dramatising a point, but SAAs are a big ship to turn around and funds should not throw out the ‘rule book’ lightly. Getting in on the ground floor of the next commodities boom, or private equity’s renaissance, are great ambitions but at most they will be satellite plays for super funds.

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