Editorial


Mark Dunne Editor


m.dunne@portfolio-institutional.co.uk


CDI: Through the looking glass


Defined benefit pension schemes are skint. Almost three-quarters of them don’t have enough cash at the end of the month to pay all their members’ benefits, according to Mercer. Many schemes no longer welcome new members and do not receive regular financial help from the sponsor, which means that they rely on their investment portfolio to generate the cash needed. If not, they have the option of selling some of their assets. Many of these schemes, if not all, have been dumping growth assets such as equities and moving into investments that generate much needed regular income streams. The focus is on income now, not growth. Property, infrastructure and direct lending have become fashionable as pension scheme strategies shifted, but, due to their liquidity and higher investment ratings, bonds are now playing a bigger role in institutional portfolios. This, however, could be a case of out of the frying pan and into the fire. Bonds may not be as safe as some believe that they are if they enter the world of negative yields, just as we have seen mainly in Europe. According to Blomberg, around a third of the world’s investment grade debt market, or $17trn (£13.8trn), is offering negative yields. As one bond manager told me a few months ago: “People are paying to get poor.” Strong things can happen when you are holding debt that is negatively yielding, as we discover in this month’s cover story on page 28. So, are you brave enough to step through the looking glass to find out?


Issue 87 | October 2019 | portfolio institutional | 3


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