And risk aversion is an important factor – not just of the members, raising questions about how you measure that, but also of the trustees and fund staff as well as their advisers. For instance, one suggestion is that the first movers in an asset class will invariably be the winners. There are lots of examples of this. The endowments moving into property and private equity in the late 1980s, big European pension funds into hedge funds and esoterics, such as life settlements, in the 1990s, Australian funds into infrastructure and property syndicates around the same time. Even the early movers into CDOs and complex derivatives had a good ride for a time.

The point is that while those funds did well as a result of fairly brave decisions, those which followed them did less well, to the point when during the GFC there was a backlash against many of these types of investments. A new way to approach AA which is being espoused by Mercer Investment Consulting is the risk-premia approach, whereby an investment is assessed according to a range of premia, such as equity risk, interest rate risk, liquidity risk and so on. Such an approach requires a shift in thinking and Mercer says it is moving slowly down that path rather than advising clients to make a great leap of faith.

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