Investment Perspectives - Summer 2018
08 Aug 2018 - Estimated reading time: 10 minutes
Welcome to our summer edition of Investment Perspectives.
With little change in interest rates, global growth prospects remaining intact, albeit showing more regional diversification, and no real sign of inflation pressures, returns in developed bond markets were pretty dull over the second quarter. In this environment, equity markets continued to edge forward, with two key exceptions: emerging markets suffered (falling as the dollar strengthened because investors were attracted by the higher interest rates available in the US) and UK equities positively prospered (delivering a near double-digit return driven by rising energy prices and a weaker pound). Graeme Johnston provides a more detailed appraisal of how markets are positioned and what is likely to affect future returns.
Away from markets, there are a number of operational and regulatory changes afoot:
- The Government issued its consultation on clarifying and strengthening trustees’ investment duties for Responsible Investing. This affects both DB and DC schemes. Rebecca Craddock-Taylor provides a summary of the proposals and implied actions for trustees.
- Andrew Bailey, CEO of the FCA, announced a year ago that LIBOR was unsustainable as a benchmark for floating-rate contracts. Emily Tann looks at the implications for pension fund investments that use this measure in various ways.
- As pension funds increasingly face the combined challenge of holding sufficient liquidity to meet benefit cashflows and collateral calls, while yields on cash remain near zero, Allison Galbraith provides some insights to the development of liquidity management strategies and enhanced yield cash-like products.
The Competition and Markets Authority (CMA) has issued its Provisional Decision report. The CMA has found that both investment consultancy and fiduciary management markets are not highly concentrated, but have identified some weaknesses in demand side engagement and access to information. While the extent of proposals may be less than some feared/wanted, the CMA has put forward recommendations for mandatory competitive tendering for schemes considering fiduciary management.
There are also proposals for trustees to set and measure progress against strategic objectives with their investment consultant, and to establish basic standards for consultants and fiduciary managers to report on performance of recommended products. Our initial reaction is summarised in our recent Sixty Second Summary and, as we noted last quarter, we will be commenting in future Investment Perspectives as we see more details from the CMA. For those wishing to make their own comments, responses to the CMA’s proposals must be made by 24 August.