Institutional Asset Manager Newsletter 20.10.23

Stormy weather

While it has taken something of a reputational bashing in recent months, liability-driven investment (LDI) continues to attract pension fund assets, even from the smaller schemes.
This week we hear how small schemes are participating in LDI strategies through Van Lanschot Kempen Investment Management which has appointed State Street Global Advisors to run a multi-billion-pound portfolio on behalf of its UK pension fund fiduciary management clients.
Nikesh Patel, Head of Client Solutions & Chief Investment Officer at Van Lanschot Kempen, says the segregated mandate "frees many [pension funds] from the potential limitations of pooled funds for the first time", and is designed to "ensure the highest standards of governance across portfolios and plan for a range of scenarios and the operational resilience of pension schemes".
After the drubbing investment managers and consultants got from the government and Bank of England following last year’s mass gilt sell-off that was a direct result of the disastrous mini-Budget, those behind the SSGA/Van Lanschot LDI strategy better hope their new approach works.
As the UK faces decidedly autumnal weather, including unprecedented rainfall as Storm Babet hits the country’s east coast, we look at a timely report from the EDHEC Infrastructure and Private Assets Institute which warns that climate change could wipe out the value of 50 per cent of the value of some institutional investors’ infrastructure portfolios before 2050.
The report focuses on the damaging impact of extreme weather events which are worsening in their magnitude and frequency thanks to climate change, and the authors warn that these risks are poorly understood among private capital investors.
Frederic Blanc-Brude, EDHEC Infrastructure & Director, Scientific Infra & Private Assets Private Assets Institute, tells us that while governments are encouraging investors to increase their allocations to infrastructure in a bid to level up and support the green transition, these are not accompanied by suitable guidance on measuring and monitoring their exposure to physical risks.
"It should be recognised that regarding climate risk, and notably physical climate risk, the data on the exposure and the financial materiality of this risk being realised for private assets is fairly limited," Blanc-Brude says.
He argues that "if no serious measures are taken, financial losses from physical risk – which are never zero – would be twice as high than in a low carbon scenario, for all investors".
Elsewhere we hear that China continues to experience a mass investor exodus, despite boasting some the of the world’s best share performance at the start of the year.
Research from Bfinance finds that the number of asset managers running emerging markets-ex China portfolios has risen to 45 this year from just three in 2017.
A combination of a troubled property sector, high local government debt, a growing unemployment rate, a shrinking labour force and state interventions have all led asset managers to drop the country, despite it accounting for 30 per cent of the MSCI emerging markets universe.
Robert Doyle, Senior Director at Bfinance, says these challenges along with the rise of "credible GEM-ex China portfolios" will continue to drive investors out of the country and in favour of alternative emerging markets.
Gill Wadsworth, Editor
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