Fixed income | Feature


Exchange-traded funds (ETFs) and pension funds are strange bedfellows. As institu- tional investors, pension schemes are in the fortunate position of being able to com- mit to large scale, relatively illiquid invest- ments to achieve higher returns. Yet with the exponential growth of the ETF market during the past decade, institutional inves- tor demand has increased strongly. The drivers of institutional investors’ appe-


tite for passives have been widely covered, they offer an alternative to poorly perform- ing active funds and lower costs. Yet the main reason why pension schemes choose to go passive appears to be liquidity. Some 80% of institutional investors hold ETFs due to how quickly they can be turned into cash, according to a survey by Greenwich Associates. Almost half of all respondents also indicated that they are using bond


Issue 86 | September 2019 | portfolio institutional | 35


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