How to tap the emerging markets in a risk-appropriate manner, benchmarking, pension fund scale and the role of bonds in a portfolio were key concerns of some of the world’s largest pension and sovereign funds at a conference in Hong Kong last week.
Mark Delaney, the CIO of AustralianSuper, told the annual Pacific Pension Institute conference last Thursday, that there was a good chance of very low inflation or disinflation ahead – “it could well go negative”.
He said: “For me as an investor for 30 years, I have never seen a period of negative inflation. It will change the rules if we get there.”
At some point, the sovereign debt in developed markets might be unsustainable and inappropriate, although not quite yet.
Delaney said low interest rates made it more difficult to generate returns.
“You begin to wonder what the role of bonds is in a portfolio. Buying bonds at current rates is very expensive insurance. You wonder whether you’re actually buying risk rather than insurance.”
Given that US equities had not gone up in 10 years, funds needed to work out what they were hedging (by buying bonds), he said. “It’s like buying house insurance after your house has burnt down.”
The conference celebrated the Institute’s 21st anniversary. A record 185 people from 23 countries attended.
One of the points of apparent consensus among the pension fund attendees was that the emerging world already made up more than 30 per cent of global GDP and this was likely to go to perhaps 50 per cent in the next 10 years. Yet, emerging markets constituted only 13 per cent of the main MSCI benchmark.
Doug Pearce, chief executive and CIO of the big Canadian pension fund management organisation British Columbia Investment Management Corp, said benchmarks were backward looking and North American biased.
To better tap into the emerging world, Pearce said his group of funds, which had about 170 inhouse investors, was building its own China team and Indian team, based in Canada, to seek out specialist managers and develop relationships.
“We’ll never really be plugged in (in the region), so we need great partnerships.”
Jacob Tsang, who runs the US$8 billion Hong Kong Jockey Club funds, said it was a nice concept to build up internal resources, “but at the end of the day, how do you get a budget for it?”.