Raphael Sobotka, global head of retirement solutions at Amundi, said his team at the $2.8 trillion global asset manager had not experienced any net redemptions since the outbreak of the coronavirus roiled financial markets.

By the end of the first week of the downturn that had already erased billions of dollars from the value of equities, Amundi had initiated a firm-wide liquidity policy that ensures portfolio managers build up cash levels and a specific list of liquid assets for all of its funds. Sobotka said his team could manage any cash flows issues because investments in illiquid assets such as infrastructure or real estate were split across several retirement vehicles.

“Tactical asset allocation has been quite important to manage drawdowns,”  the executive said in an interview with Investment Magazine from Paris. “It’s quite important to assess your portfolio’s liquidity daily and benefit from the mini rallies. It’s better to be dynamic and not wait for that black swan event.”

So rather than scramble to bolster liquidity buffers, as experienced by pockets of Australia’s superannuation industry, Sobotka’s team have been investing instead. They’ve bought investment-grade credit, topped up their holdings in technology stocks and sold some equity volatility. They’ve left their longer-term equity allocations unchanged because the economic outlook over the same time frame remains unchanged from the crisis.

Of their investments in fixed income, Sobotka said the liquidity premium embedded in investment-grade credit was particularly important for his business that provides long term retirement solutions globally. Amundi currently oversees around $115 billion in defined benefit plans today. They’re also steering clear of high yield, for now anyway, ahead of what they expect to see as “significant downgrades and defaults” among corporates.

Sobotka, who worked for HSBC Global Asset Management during the global financial crisis from London, said that while equity valuations were back to a higher level and liquidity had returned to the credits markets thanks to central bank intervention, the big unknown was leveraged finance which his funds had limited exposure too.

“When you have a very big shock in the market like we have had today, the most fragile financially engineered sector can be shaken,” he said. “But it’s a bit too early to see what the fallout from the shock will really be. It is difficult to see today what part is going to stand and what part is going to fail and that will depend on the duration of the shock.”

It’s for this reason Sobotka’s said that his clients were either sticking with Amundi’s retirements products that have built-in protection for 90 per cent of the capital or are asking to invest. “To put it this way, we have had no negative feedback, these solutions do what they say on the tin.”

As for their income strategies, the investment executive said the likely return of negative real interest rates was a “game-changer” for that part of the business. It meant all longer-term retirement products would once again have to take on an “additional pinch of risk” particularly in equities and investment-grade credit.

“We are now facing zero or even negative real interest rates everywhere,” Sobotka said. “That is going to last for some time which means for retirement solutions it is going to be even more difficult.”

Sarah Jones is the deputy editor of Investment Magazine. She previously worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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