(April 12, 2013) – Despite the bipolar reaction to risk parity in the investment space to date, experts agree that the approach would be good for DC schemes across the world.
Speaking at the aiCIO CIO Summit 2013 in New York, Lee Partridge, portfolio strategist at the San Diego County Employees Retirement Association, told delegates risk parity would be “absolutely appropriate” for DC schemes as it would help to protect those who take on a large element of risk in traditional lifestyling products at the start of their savings journey.
Guy Stern, head of multi-asset management at Standard Life Investments, added that he believed it would also assist those who wanted to take advantage of their larger pot size in later years, but didn’t want to expose themselves to large amounts of asset and volatility risk.
“When you’ve got more assets, a risk parity approach could lower your total volatility, or risk, or whichever it is you’re concerned about, and allow you to invest in more return-seeking assets,” he added.
Speaking to aiCIO after the debate, Stern rebuffed suggestions that the fact other established DC markets had so far not embraced risk parity was not a reason to believe they wouldn’t in future.
“There are two main camps, those that are looking at risk parity as a satellite, and others who are saying, ‘Why not make it our default fund?'” he said.
“I’m confident we’ll see it coming to the UK and Western Europe in future.”
“Australia’s a very different market as it’s dominated by superannuation funds which are constructed differently. They’re also run by former defined benefit guys – but that won’t necessarily continue in future.
Related content: When Risk Parity Goes Wrong & What Would a Bursting Risk Parity Bubble Look Like?