Pension fund executives worldwide are making contingency plans in case the unthinkable happens: The sovereign debt contagion from countries like Greece, Ireland and Spain leads to a breakup of the euro.
“Every meeting we have with investment managers, we are seeking their views on the outcome of euro debt issues and the consequences for their portfolios,” said the chief investment officer at a multinational corporate pension fund, who asked not to be identified. “We are also thinking about, at a very high level, the potential impact on our pension schemes in euro countries, particularly those with significant debt issues, should the disaster scenario happen and the euro collapses or a specific country leaves.”
Similarly, the CIO of a large industrywide U.K. pension fund said the issue is at “the forefront of our minds at the moment.” He declined to elaborate.
In the U.S., the $215 billion California Public Employees' Retirement System, Sacramento, is “monitoring the situation closely, but there's no predicting the outcome with any certainty,” Clark McKinley, spokesman, said in an e-mailed response to questions. “We're handling this like any other portfolio management strategy, where we consider the yields relative to the risks.” CalPERS' eurozone investments totaled $18.6 billion as of Oct. 30.
Pension fund officials are right to think about ways to limit losses in the event of a restructuring of European Economic and Monetary Union members — those European Union countries that use the euro as their currency, said Alan Brown, CIO of Schroder Investment Management Ltd., London. He believes the probability of a change in eurozone membership might not be as minute as some experts think.
“For a (pension) fund, it is a governance issue, making sure that their fund managers are alive to the issue and are taking such steps as are possible to limit risks in the event of a restructuring of the euro membership,” Mr. Brown said in an e-mail.