(February 9, 2012) — Institutional investors are moving beyond traditional equity and fixed-income by implementing “global listed infrastructure” strategies into their Liability Driven Investing (LDI) framework, according to a newly published report by Capital Innovations, an alternatives-focused investment manager.
“Investors are faced with a challenging landscape with low GDP growth, high volatility global equity markets and a low interest rate environment that has spanned several decades,” said Michael Underhill, Chief Investment Officer of Capital Innovations. “Purchasing power has been eroded by 80+% in the last forty years,” he said, noting that investors are eager for long-term investment programs.
Consequently, according to Underhill, Liability-driven Investment strategies have proven effective in factoring an investor’s liabilities as an essential element of determining asset allocation, thereby helping to more efficiently manage risk.
According to Underhill, LDI strategies are useful for an array of institutional investors, including corporate retirement programs, sovereign wealth funds, and endowments and foundations. While numerous corporate pension funds have been blindsided by market volatility, now struggling to focus on an asset allocation that is appropriate for their funding status, endowments and foundations are struggling to gain inflation protection for their portfolios, Underhill said.
“All of these types of programs have found global real assets attractive in an LDI framework for their ability to provide for their portfolio,” Underhill said.
Underhill’s remarks on the growing propensity of long-term investors to move beyond traditional equity and fixed-income and focus on infrastructure follows a report last year by the World Economic Forum (WEF), which reported on the future of long-term investing. In the report, headed by 19 major pension and private investment funds, the WEF warned that policy and investor changes are instrumental in driving the growth of long-term investments.
According to Max von Bismarck, director and head of investors of the WEF and co-author of the report, long-term investors are crucial for the global economy, acting as counter-cyclical forces in markets during times of high volatility, solving decaying infrastructure problems around the world.