Debt crisis creates winners and losers, says CREATE
The longer the debt crisis continues the greater will be the divide between leaders and laggards in the institutional world, according to CREATE chief executive Professor Amin Rajan.
An analysis of the last five annual Principal Global Investor CREATE surveys has revealed that investors have been looking for regular income and effective risk management rather than chasing returns.
However, defined benefit (DB) approaches to risk have split down private/public lines, with public sector schemes building up risk in an attempt to reduce deficits and the private sector de-risking to avoid loss.
The renewed focus on risk management has been accompanied by a marked difference in underlying asset allocations.
The report found defined benefit (DB) arrangements, in an attempt to lessen significant deficits, had turned to assets not used prior to 2009 such as emerging market bonds (46 per cent in 2013), alternative credit (46 per cent), and infrastructure (45 per cent).
Those assets were buoyed by an increasing interest in traditional indexed funds (+21 per cent), high yield bonds (+13 per cent), emerging market equities (+12 per cent) and real estate (+7 per cent).
Defined contribution (DC) schemes have sought to replicate the best features of DB schemes for investors who are keen on advice-embedded products, which has seen new assets such as multi-asset class funds (63 per cent) and diversified growth funds (45 per cent) added to the mix.
Although DB schemes have altered strategies in an attempt to stay afloat, CREATE said DC schemes would see huge inflows off the back of DB plan closures - as widening deficits required more than 6.5 per cent average annual returns to satisfy.
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