Opinion: Attractive asset classes

15 Apr 2020
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Many pension schemes have seen funding levels fall significantly in response to the crisis. However, the volatility in markets has left some asset classes looking more attractive for schemes.

Financial markets have been hit by two impactful events in quick succession, the COVID-19 outbreak, and the less-publicised oil price war. The combination of these events has caused extreme volatility in financial markets, the level of which has not been experienced since the Global Financial Crisis.

In addition to the tragic human impact, these events have inflicted heavy losses across risk assets and investors have flocked to ‘safe haven’ assets:

Strategic opportunities

Pension schemes have suffered as a result with funding levels falling, modestly in some cases and much more significantly in others. But the chaos in the markets has left some asset classes looking more attractive.

For schemes that have the liquidity and capability – or can create it – these present the opportunity for making investment changes to rebalance their portfolio and mitigate their losses and improve journey plans and security for members.

To highlight two areas that may already be worth considering:

Other asset classes such as Distressed Debt or Real Estate Secondaries also have potential as investment areas depending on how the crisis unfolds. Trustees should be alert to future developments and ensure they have the right governance framework in place to act quickly and make future changes.

Although it is difficult to predict the exact triggers for future change, asset class re-pricing is likely to be driven by a combination of:

The suitability of these investments will depend on the specific situation of your scheme. If you would like to discuss how to get the best outcomes for your scheme and scheme members, please contact us.

 

Attractive asset classes