(November 11, 2010) — As risk management has begun to outpace investment returns as the premier focus for pension fund execs following the recent market downturn, a greater number of pensions are taking a tactical approach to liability-driven investment hedging, according to a recent survey by F&C.
“Often this means that they are switching between swaps, gilts and index-linked gilts to take advantage of value opportunities,” said F&C head of derivative fund management Alex Soulsby. He added that the cheapness of inflation has been implied by the index-linked gilt market this summer, reflecting opportunity for pensions.
According to the fund manager’s latest quarterly survey, inflation hedging has become increasingly prominent among pensions while interest rate hedging has declined in popularity compared to previous quarters. The firm stated in its results that exposure was attained through both physical and synthetic hedging instruments.
In related news, EDHEC Business School in London has recommended that money managers should hedge market risks from their businesses in order to protect their shareholders or other owners from investment volatility. According to the paper titled “Market Risks in Asset Management Companies,” such hedging would improve the relationship between compensation and adding value to shareholders.
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