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No Safe Haven for Institutional Investors

Announcement posted by marcus evans, summits division 05 Aug 2010

Christian Elsmark, Head of Global Institutional Business at Scottish Widows Investment Partnership Limited, a sponsor at the marcus evans Nordic Pensions & Investments Summit 2010, discusses the challenges for investors in an uncertain investment land

Interview with: Christian E. Elsmark, Managing Director, Head of Global Institutional Business, Scottish Widows Investment Partnership Limited

Stockholm, Sweden, August 5, 2010 - FOR IMMEDIATE RELEASE

For institutional investors and asset managers, there is no safe haven in an uncertain investment environment, says Christian Elsmark, Managing Director, Head of Global Institutional Business at Scottish Widows Investment Partnership Limited. While historic rules of thumbs are being questioned (such as what is the acceptable asset class correlations and what is a reasonable tracking error against benchmarks for active managers), an appropriate investment strategy must still be determined by how they view their fiduciary responsibilities and whether they clearly understand the drivers of risk and return of all their investments.

Any prudent investor must give careful consideration not merely to the quantitative analysis of risk, but the potential sources of any such risks. For instance, when investing in direct real estate, the key question for investors seeking to increase their non-domestic exposure is how to take into account the risk profiles associated with the diversification benefits obtainable across sector, grade and location.

From a sponsor company at the marcus evans Nordic Pensions & Investments Summit 2010 taking place in Sweden, October 27 - 29, Elsmark shares his thoughts on investors’ fiduciary responsibilities, and the need to improve the debate on active asset allocation and risk management practices for consistent performance.

How can pension fund Chief Investment Officers overcome uncertainty?

Christian Elsmark: Against a background of uncertainty in the economic outlook, the ability to cover pension fund liabilities is a major concern for Chief Investment Officers (CIOs). Many are actively looking at de-risking options, such as liability driven investment strategies, as well as ways to protect and benefit from increased inflation expectations.

There is no one size fits all approach that can be taken by pension funds nor are there safe havens. Markets are uncertain and alpha is cyclical. The future is always going to be uncertain. The ability to face the challenges of the future must rely on institutions respecting their fiduciary responsibilities and being willing to question the conventional wisdom in the investment world. It also means having the confidence to stick with their active asset managers who deliver consistent performance by rigorous fundamental research and informed decision-making.

Where are the investment opportunities for Nordic CIOs?

Christian Elsmark: Nordic pension funds have typically been very active investors both across and within asset classes. As compared to other European pension schemes, they typically allocate early in an asset class cycle – trying to capture the highest alpha opportunity set. I believe they will continue to increase their allocation on a global and regional basis, to take advantage of the alpha opportunities in emerging markets.

What best practices would you recommend to institutional investors?

Christian Elsmark: It is critical to have a clear understanding of where they are allocating the money of the shareholders and stakeholders they are responsible for. Fiduciary responsibility must be top of the agenda. Fiduciary duty means not trying to capture the latest fad or fashion, nor investing in asset classes or strategies that are not well understood or where they have not considered any unintended consequences of their investment strategies.

There is probably going to be an increase in assets going to passively managed strategies, simply because many investors are faced with too many choices and uncertainty; sometimes too much choice causes confusion and investors may passively allocate money just to make their lives easier. However, they should not put all their eggs into passive investment strategies; they will not always generate enough return. There are times where alpha is more cyclical and the opportunity set more attractive, but in a recessionary environment with declining capital values, they may be less active than when the economic outlook is more positive. When confidence or optimism returns, they can move to more active investment strategies to take advantage of mispricing of various assets.

The risk of allocating too much to passively managed assets and not having a dynamic asset allocation policy may simply be that the pension fund cannot generate enough returns to pension liabilities. Therefore, an active beta-alpha split in terms of asset allocation might be best for certain pension funds. This type of approach is being increasingly adopted by pension funds today.

What are some of the upcoming trends and developments and how should pension funds prepare for those changes?

Christian Elsmark: Asset management has been affected by the financial crisis and what is clear is that it now offers asset managers the opportunity to put in place effective and efficient organisational and investment frameworks for looking after clients’ assets.

In a still relatively volatile market environment, a lot of asset managers are restructuring their cost base to become more flexible. As well as ensuring they have the right skills and resources to deliver the right performing investment solutions to their clients. Let us not forget that our long-term success is really dependent on our clients’ success.

Contact: Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division

Tel: + 357 22 849 313

Email: press@marcusevanscy.com

Aboutthe Nordic Pensions & Investments Summit 2010

This unique forum will take place at the Sheraton Stockholm Hotel, Stockholm, Sweden, 27 - 29 October 2010. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The summit includes presentations on managing risks, responding to regulation requirements and capitalising on investment opportunities.

For more information please send an email to info@marcusevanscy.com or visit the event website at http://www.nordicpensions-summit.com/ChristianElsmarkInterview

Please note that the summit is a closed business event and the number of participants strictly limited.

About marcus evans Summits

marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to individually tailor their schedules of keynote presentations, think tanks, seminars and one-to-one business meetings. For more information, please visit http://www.marcusevans.com

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