that lens when exploring emerging markets. If there is some- thing we can get into, we have to ask if it fits the other criteria.


There are lots of questions involved in adding EM debt to a DC default. It could possibly be easier if there was a specific self-se- lect fund a scheme could put to its members, for example. Pickering: As a pension scheme trustee, I am not keen on encouraging self-select. Defaults properly structured with the members in mind should not just be default in name, but default in action. There is scope as DC schemes move more and more to master trusts, which offer a financial wellness package of savings vehi- cles with access to advice, to have self-select funds in the Isa- side of the savings wrapper rather than the pensions side where the trustee is off the hook to some extent. But by provid- ing financial advice as part of the package, those who are gen- uinely sophisticated and want to drill down to more focused market allocations can do so within their savings portfolio. When it comes to the mainstream DC offering, there is a lot of scope for creative thinking because in DC there has been a false catalyst of retirement age. Where people have a DC plan and a state pension and no DB legacy, they need to arrange their savings for 20 to 30 years of life expectancy. The trustees who are stewarding those long-term savings vehi- cles, without the guarantee that is part of a DB or annuity offer- ing, there is scope for volatile asset classes within that time- frame which ought not be subject to day trading. Rhodes: This is where, in DC, a well-formulated default fund should offer something balanced. Going forward, in looking for growth, emerging markets are likely to become a greater part of that. We rely on our fund managers to create the correct balance of exposures to all of these things as we transition to a net-zero world.


Are developed market portfolios with emerging market debt exposures ready for a hawkish Fed? Pickering: It is difficult to second-guess central bankers. I am glad to be an asset owner rather than the asset manager. They are in the firing line. As we speak, we are in the throes of electing a new prime minister. Our central bank has been sucked into the electioneering for the leadership of the UK gov- ernment. Until now there has been a consensus that central bankers should be hands off when it comes to political issues. Rather than thinking about what central bankers might throw at us, we need to ask are central bankers ready for what other people might throw at them. The role of central banks may be coming under political scrutiny. Lasocki: The political landscape in the US is tricky from an EM perspective. As ever, a strong dollar and rising yields in the US are detrimental to EM.


12 September 2022 portfolio institutional roundtable: Emerging market debt


Investing passively in emerging market bonds is a


recipe for disaster. Krzysztof Lasocki, Royal Mail Pension Plan


The question is how long politically can the Fed allow inflation to remain high in the US. Mid-term elections are coming up, so there is a lot of political uncertainty. The US is on the brink of recession, but it is a rare recession where unemployment is low. We have the same problem in Britain and Europe – real wages lagging behind employment. There are a lot of moving parts in the US. I hear conflicting forecasts in the US from investors, manag- ers, economists and colleagues on how the Fed might act. Per- haps they may retract sooner than the markets expect and go back to lower rates. To answer the question, I am not sure EM countries are ready for this. For example, I am worried about Brazil, which is highly indebted and has presidential elections this year. There is political uncertainty and the incumbent is spending a lot of money to save his re-election. On the other hand, the front- runner is a returning left wing ex-president who may have his


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