Liquid Alternatives/ESG: New Challenges for Pension Financing and Retirement Security

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A webinar by the Bloomberg Women’s Buyside Network took stock of the “new normal “ confronting pension and retirement security.

The webinar on pension and retirement funding by the Bloomberg Women’s Buyside Network featured John Livanas, Chief Executive Officer, State Super; Geraldine Buckingham, Chair and Head of Asia Pacific, BlackRock; and Ludovic Subran, Chief Economist, Allianz. Bloomberg’s Executive Editor, Tracy Alloway, moderated the webinar. (WebWire)

COVID-19

The virus pandemic will have an impact on pension financing due to the damage it has inflicted on the economy. Questions swirl around the possibility and timing of an economic recovery.

In the meanwhile, the recent market turmoil and lower yields will affect investment returns at pension and retirement funds.

Under this new normal, what should their managers do?

Serious challenges facing funds

Geraldine Buckingham pointed towards the pressures on returns from persistently low-interest rates, a hangover from pre-COVID days. This scenario threatened pension financing and retirement security.

“For savers and retirees, that is incredibly challenging because the traditional allocation strategies that people rely on for retirement income will simply not be there, and they will have to do something different,” she noted.

Ludovic Subran warned of the impending changes in social demographics and life expectancies. “Problems are now twice as bad because of the higher life expectancy and longer retirement periods,” he observed. “We need to ensure that people who stay longer in retirement have a proper quality of life and that we don’t create a generation of poor retirees because of a lack of preventive actions that address the issue of the longer time spent in retirement.”

The twin comments above highlight the double whammy facing pension funds – lower interest rates and longer life expectancies.

Solutions and suggestions – liquid alternatives

Geraldine Buckingham advocated a ‘whole portfolio’ approach that includes liquid alternatives. “What can help pension savers is an understanding of exposure and risk across the portfolio,” she suggested. “With different correlations between different asset classes, it’s important to consider a holistic asset allocation approach including liquid alternatives, low fee ETFs in addition to actively-managed solutions.”

Solutions and suggestions – hidden opportunities

According to John Livanas, there might be opportunities lurking amongst the mayhem. “With careful examination, the changing demographics globally, and the disruptive change that will likely be caused by COVID-19 can yield superior returns to risk.”

Ludovic Subran seconded that view: “We need to continue thinking about and proposing solutions before investors miss out on the opportunity in a very big manner.”

Solutions and suggestions – ESG

Here, the ESG performance of companies may be a guiding compass and help funds to separate the wheat from the chaff.

“In the current period of change and disruption, where expectations of future earnings are even more uncertain, evidence of strong corporate public governance, social responsibility, and environmental conduct may provide clues that differentiate successful investment opportunities from those that might well be disappointing,” observed John Livanas.

New technology

Participants agreed that pension funds must modernize their investing and adopt new technologies, markets, and processes.

“Technology can be incredibly powerful not just in deciphering data, but also in helping people understand the risk in their portfolio and modeling their portfolios and strategies that support flexibility, optionality, and interoperability,” commented Geraldine Buckingham.

“The world is not as before and we need to apply enhanced risk management and monitoring tools,” John Livanas added.

Related Story:  “What’s Next? Investment Trends for the Future” – A New Study Gauges the Institutional View Three Decades Into the Future

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