When equities become an ATM
Many global institutional investors including pension funds are being forced to use their equity portfolios as automatic teller machines because of their inability or reluctance to sell tradable securities at an appropriate price, according to the chief executive of Bank of New York Mellon Transition Management, Mark Keleher.
Keleher said last year’s historic sell-off in equity markets, combined with modest gains in the broad fixed income index, had pushed the portfolio allocations of institutional investors far from their targets.
He said many portfolios contained fixed income securities that were difficult to value or were currently untradeable and this was creating problems for investors trying to rebalance by selling bonds and buying equities.
“The illiquidity has had a major negative impact on the cash flow of pension plans, endowment, and foundation investors who must meet ongoing obligations to beneficiaries,” Keleher said. “Investors have been forced to sell their most liquid investments — liquid equities — because they refused to accept fire sale offers for their fixed income portfolios.”
He said one of the approaches being encouraged by his company was an overlay strategy that had the starting point of comparing the costs involved in the traditional approach of swapping physical assets with an overlay program using futures.
AUTHOR
Mike Taylor
Recommended for you
AUSIEX has announced it will acquire FIIG, a specialist fixed income provider with $4.5 billion in funds under advice.
Platinum Asset Management has announced it is in discussions with a global alternatives fund manager regarding a possible merger to create an $18 billion firm.
Frontier Advisors has bolstered its Japanese footprint through a partnership with the $350 billion asset management arm of Nippon Life Insurance Company.
JP Morgan Asset Management has appointed an ETF specialist from Vanguard as it seeks to expand its ETF range.
