Pensions Champion Emerging Market Debt

A new survey by Pensions Week has shown that emerging debt has trumped developed debt.

(January 24, 2011) — Pensions have reported favoring emerging market debt over developed market debt, accreting to a survey by Pensions Week of investment consultants.

According to the survey’s respondents, which included Towers Watson, Mercer, JLT, and Aon Hewitt, eight out of 13 leading EM debt fund managers say they expect 7-9% returns across the asset class in 2011.

While Russia was believed to be the biggest country allocation in four of the funds surveyed, three others favor South Africa and Mexico, and two more go for Brazil, the Financial Times reported. “We have a large weighting in Russia 2030 bonds, which tend to be a highly liquid proxy for the overall market,” Damien Buchet, head of emerging market fixed income at Axa Investment Managers, told the FT.

With emerging markets set for further heavy inflows of investment, fund managers have expressed continued confidence in emerging markets as a top 2011 bet, fueled by double-digit returns, rising incomes, and rapid economic growth. According to the Institute for International Finance (IIF), equity portfolio flows to emerging markets are set to reach $186 billion this year and will be more than double the $62 billion annual average seen between 2005 and 2009. The findings by Pensions Week support earlier findings from a survey by Deutsche Bank, which pointed to a continued desire to focus on emerging markets and alternative strategies, such as long-short equity, macro funds and special situations, as opposed to US equity.

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

The report — compiled late last year by Deutsche Bank Pension Strategies & Solutions — discovered that hedge funds have emerged as one of the most popular areas for future investment, particularly among public and corporate defined benefit plans. While 46% of respondents anticipate increases to emerging markets and 41% for hedge funds over the next 12 months, 44% said they would like to decrease their exposure to US large-cap equities. Meanwhile, 38% said they would like to reduce exposure to small-cap equities.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Governors Nationwide Fight to Tackle 'Pension Bomb'

In the face of escalating fiscal problems around the country, governors are upping their rhetoric on pension reform in an effort to tackle heightened costs.

(January 24, 2011) — To deal with escalating fiscal problems, governors nationwide are fighting to increase their efforts on pension reform in an attempt to reduce costs.

Already, the governors of New Jersey, California, Washington, Virginia, and Massachusetts have publicly endorsed such reforms. In New York City, the issue was highlighted recently when Mayor Michael Bloomberg promoted his own plan to reduce rising pension costs, which are among the biggest pressures on state budgets.

Last week, Bloomberg promised to support New York Governor Andrew Cuomo’s proposed public-pension reforms. “We will work to pass several basic reforms to bring our pension system into the 21st century,” Bloomberg said in his annual State of the City Address, aiming to solve the city’s looming $2.4 billion deficit. With costs for New York City taxpayers only heading higher, Bloomberg said he wants lawmakers to hike the retirement age for non-uniformed city employees to 65. Additionally, he announced that he wants to reduce the cost of the city’s pension system by consolidating some of its administration and raising the retirement age for new employees.

In New Jersey, Governor Chris Christie addressed the state General Assembly on January 11, saying the unfunded liability of the New Jersey Division of Investment would grow to a “staggering” $183 billion from the current $54 billion within three decades. And in his State of the Commonwealth address, Virginia Governor Robert McDonnell proposed that state employees contribute 5% of pay to the $51.9 billion Virginia Retirement System.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

Despite the urges by governors around the country, a recent report from the Center on Budget and Policy Priorities concluded that misunderstandings regarding state debt, pensions, and retiree health costs are exaggerated. The report stated that predictions of an “imminent fiscal meltdown” among US states and municipalities have created misperceptions also diverting attention from needed structural reforms.

While US states will reportedly confront deficits totaling $140 billion in the next fiscal year, the Center has concluded that the operating deficits most states are forecasting for fiscal 2012 are largely the result of the weak post-recessionary economy. “Overheated claims about state and local budget problems not only are inaccurate, but also could lead policymakers to take unwise steps such as allowing states to declare bankruptcy or forcing them to change the way they report their pension liabilities as a condition for issuing tax-exempt bonds,” Iris J. Lav, senior adviser at the research group, stated in a news release.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

«