No Safe Haven for Institutional Investors

For institutional investors and asset managers, there is no safe haven in an uncertain investment environment, says Christian Elsmark, Managing Director, Head of Global Institutional Business at Scottish Widows Investment Partnership Limited. While historic rules of thumbs are being questioned (such as what is the acceptable asset class correlations and what is a reasonable tracking error against benchmarks for active managers), an appropriate investment strategy must still be determined by how they view their fiduciary responsibilities and whether they clearly understand the drivers of risk and return of all their investments.

Any prudent investor must give careful consideration not merely to the quantitative analysis of risk, but the potential sources of any such risks. For instance, when investing in direct real estate, the key question for investors seeking to increase their non-domestic exposure is how to take into account the risk profiles associated with the diversification benefits obtainable across sector, grade and location.

From a sponsor company at the marcus evans Nordic Pensions & Investments Summit 2010 taking place in Sweden, October 27 - 29, Elsmark shares his thoughts on investors’ fiduciary responsibilities, and the need to improve the debate on active asset allocation and risk management practices for consistent performance.

How can pension fund Chief Investment Officers overcome uncertainty?

Christian Elsmark: Against a background of uncertainty in the economic outlook, the ability to cover pension fund liabilities is a major concern for Chief Investment Officers (CIOs). Many are actively looking at de-risking options, such as liability driven investment strategies, as well as ways to protect and benefit from increased inflation expectations.

There is no one size fits all approach that can be taken by pension funds nor are there safe havens. Markets are uncertain and alpha is cyclical. The future is always going to be uncertain. The ability to face the challenges of the future must rely on institutions respecting their fiduciary responsibilities and being willing to question the conventional wisdom in the investment world. It also means having the confidence to stick with their active asset managers who deliver consistent performance by rigorous fundamental research and informed decision-making.