Pensions & Investments: Market Shocks Prompt Allocation Overhauls
NEPC’s Aaron Chastain was quoted in a recent Pensions & Investments article to weigh in on how corporate pension plan portfolios in the U.K. & U.S. have been distorted by upheaval. View the article on Pensions & Investments’ site here.
Corporate pension fund portfolios in the U.K. and U.S. that have been distorted by recent market events are set for an asset allocation overhaul. A combination of rising interest rates leading to falling liabilities, plus increased needs for liquidity in portfolios means asset allocations are, in some cases, no longer serving their intended purpose on either side of the pond. Sources said pension fund sponsors now have an opportunity to further derisk portfolios, with a view to completing a risk transfer or achieving self-sufficiency.
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There are also conversations among U.S. plans on what constitutes an appropriate interest rate hedge, since it “now takes less dollars to achieve the same interest rate hedge,” said Aaron Chastain, Atlanta-based senior consultant at NEPC LLC.
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NEPC’s Mr. Chastain is also seeing some clients reducing commitment sizes but not stopping investments altogether. They “definitely don’t want to eliminate those relationships (with fund managers) for a shorter-term market event in terms of an asset allocation perspective,” he said.
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Bloomberg: Stocks See Late-Day Rebound After Unnerving Twists: Markets Wrap
NEPC’s Phill Nelson was quoted in a recent Bloomberg article to discuss what to expect from the 9/21/22 Fed meeting’s announcement on interest rates. View the article on Bloomberg’s site here.
Stocks pushed higher in the final hour of New York trading, with a rally in megacaps like Apple Inc. and Tesla Inc. driving a rebound that followed the worst weekly rout for the market since mid-June.
Major equity benchmarks had a tough time finding direction Monday as traders geared for another super-sized US rate increase amid fears on whether the Federal Reserve could overtighten and raise the odds of a hard landing. Treasury 10-year yields hovered near 3.5% while the two-year rate, which is more sensitive to imminent policy moves, hit the highest since 2007.
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“The question to focus on isn’t whether the Fed will hike rates by 75 basis points or 100 basis points,” said Phillip Nelson, head of asset allocation at NEPC. “What we’re looking for is how aggressive Powell will be in the next six to 12 months. The messaging we get in the next few weeks could be a bigger data point and a shock to investors.”
Pensions & Investments: ESG: Multi-Asset Investing
NEPC’s Dulari Pancholi was featured in a recent Pensions & Investments article to share top ESG themes as well as developments in data, benchmarks and regulation that are powering continued inflows into ESG investing across both public and private assets. View the article on Pensions & Investments’ site here.
Environmental, social and governance investing has evolved far beyond a process based on exclusion to one that is inclusive, activist and focused on alpha. Institutional investors are addressing the dual purpose — to effect change and generate alpha — via a range of sustainable investment approaches, typically impact funds, asset-specific ESG strategies or multi-asset portfolios.
Across all approaches, the state of investing based on ESG factors is robust. Global ESG assets under management were $35.3 trillion in 2020, up 15% from $30.6 trillion in 2018, according to the Global Sustainable Investment Alliance. ESG’s portion of total global AUM rose to 35.9% from 33.4% in the same period.
GSIA projects global ESG AUM will rise 16%, to $41 trillion, this year; and 22%, to $50 trillion, by 2025. The message is clear: ESG investing is here to stay, and its future is bright
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While a multi-asset strategy can be one of several ways to implement an ESG investment approach, Dulari Pancholi, CFA, CAIA, principal and head of credit and multi-asset at NEPC, said that she sees multi-asset as the right approach for asset owners today.
“The way ESG investing has evolved almost requires you to take a multi-asset approach,” she said. “The investible universe has expanded so much beyond the listed stocks where ESG originated. Now there are asset classes like private debt and private markets, or debt more generally, [and they] are tougher to work with” in terms of the availability of ESG products and challenges in ESG data collection. “In the fixed-income space, for example, you now have green bonds, which are an evolution of green revolving-loan facilities. There are term loans that are tied to sustainability metrics and sustainability-linked bonds that are tied to the ESG performance of the portfolio or underlying company.
“So if you’re trying to build an ESG portfolio that can integrate some or all of the available asset classes, you need a toolbox that can hold a lot of different tools. That’s what multi-asset is all about,” Pancholi said.
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The Wall Street Journal: Almost Half of Stock Pickers Beat the Market in Early 2022 Selloff
NEPC’s Tim McCusker was quoted in a recent Wall Street Journal article to discuss how active managers have benefitted from monetary tightening in early 2022. View the article on The Wall Street Journal’s site here.
Nearly half of large-cap U.S. stock-picking funds beat the S&P 500 during the brutal selloff in the first half of the year, putting active managers on pace for their best year since 2009.
Bruised by sky-high inflation and rising interest rates, the S&P 500 fell 20% on a total return basis, which includes dividends as well as price changes, in the first six months of 2022. That was the index’s worst first half in data going back to 1988, according to Dow Jones Market Data.
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“In the first half, active managers being compared against the market may have benefited from the environment of monetary tightening as the Federal Reserve began raising interest rates”, said Tim McCusker, chief investment officer at investment consulting firm NEPC.
“That’s a helpful thing for active managers,” he said. “Instead of money just flooding into equity markets and pushing all assets higher, you’re starting to see some differentiation.”
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Global Investment Leaders Podcast: Guiding the World's Largest Employee-Owned Institutional Consultant
NEPC Managing Partner Mike Manning joined Rosemont CEO Chas Burkhart on the latest episode of the Global Investment Leaders podcast to share his perspective on the firm’s evolution since its founding in 1986, how NEPC is positioning for the future, and more.
Listen now:
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PlanSponsor: Corporate DB Plans See Slight Funded Status Improvement in February
Estate Planning: Build Back Better: Challenges and Opportunities for Private Wealth Clients
