How Longevity Will Scupper Your Investment Strategy

Improving longevity among pension fund members means the majority of pension funds will fail to reach their long-term investment goals, according to an investor survey by Swiss fund manager GAM.

At a conference last week 78 institutional and wholesale investors were surveyed, with 78% casting doubt on the long-term viability of pensions’ investment strategies.

The respondents also said regulation could hamper investment success, as 64% said regulation needed to change to allow more flexibility in asset allocation.

“The investment backdrop has changed dramatically in recent years as monetary policy has begun to diverge and we believe that the markets have reached an inflection point.” —Alexander Friedman, GAMSeveral organizations have issued stark warnings about the impact of increasing life expectancy on liabilities in the past 12 months. The Organization for Economic Co-operation and Development said in December that pension policymakers had yet to fully confront the effects of demographic change, adding that it would take “many years” to push through changes to address these problems.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

New mortality tables in the US added $29 billion to the liabilities of 19 of the country’s biggest corporate plans when introduced in March, according to research by Russell Investments.

Elsewhere in GAM’s survey, respondents said geopolitical risk, a stalling economic recovery, and the path of interest rates were the top three biggest risks currently faced by investors. Less than a third (29%) said Greece exiting the Eurozone was one of the top risks, while 21% highlighted a hard landing in China.

“The investment backdrop has changed dramatically in recent years as monetary policy has begun to diverge and we believe that the markets have reached an inflection point,” said Alexander Friedman, GAM’s group CEO. “The indiscriminate market rally in risk assets is coming to an end and investors have to take a truly active approach to identify the sources of alpha for the coming years.”

Wilshire Consulting, the advisory and outsourced-CIO (OCIO) arm of Wilshire Associates, has named Steven Foresti as its CIO.

A Wilshire veteran, Foresti has assumed investment chief responsibilities in addition to remaining as head of the firm’s research group, where he oversees strategic investment research and asset allocation modeling.

The new role streamlines Foresti’s ability to translate research into “actionable recommendations” for consulting and OCIO clients, the firm said.

“Steve has been deeply involved in developing Wilshire’s capital market assumptions and publishing strategic investment research on behalf of Wilshire clients,” said Julia Bonafede, Wilshire Consulting’s president. “In many ways, he has performed the activities of a CIO for years and his appointment simply formalizes his responsibilities.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

According CIO’s 2015 OCIO Buyer’s Guide, Wilshire had 10 full discretionary OCIO clients with a total of $6.96 billion under management as of September 30, 2014. A large majority ($6.76 billion) of assets were from corporate pension funds, the firm reported, in addition to smaller mandates from public pension plans and foundations.

Since joining the Santa Monica, California-based firm in 1994, the now-CIO focused on researching both traditional and alternative investments. He has authored various papers on factor-based asset allocation, asset-liability studies, and unconstrained bond strategies, the firm said.

He also played a crucial role in creating Wilshire’s models for quantitative attribution and risk analysis.

Last year, the consulting business added a risk management tool for pension plans and investment portfolios—dubbed Wilshire Compass Acuity—designed to monitor various types of risk and how they apply to each holding.

Foresti also serves as chair of Wilshire Consulting’s investment committee and the firm’s 401(k) committee.

Prior to his 20-plus-year tenure at Wilshire, Foresti worked as a mutual fund specialist at Morgan Stanley.