Risk-factor allocations outperform traditional allocations over the long term and improve the efficiency of an investor's portfolio, said Pascal Blanque, deputy CEO and global chief investment officer of Amundi Asset Management.
“We need to enlarge the notion of risk,” Mr. Blanque said in a discussion on the reincarnation of diversification at Pensions & Investments' Global Future of Retirement conference in New York on Tuesday.
Mr. Blanque said asset price dynamics are driven by macro factors — growth, inflation and market stress — that should be factored into asset allocations. He added it is “simply wrong” that investors can make arbitrage plays across all asset classes.
Mr. Blanque focused on liquidity and currency risks as the largest threats to investment returns. Foreign-exchange management is the most important part to managing a portfolio, he said.
He also talked about looking beyond “the classification of liquid assets vs. illiquid assets” and focusing on the function of each asset in a portfolio, whether they are growth or income assets, for example. Liquid investments are associated with listed assets, but with banks moving away from being market makers, liquidity is more of an issue with bonds, Mr. Blanque said. ESG risks cannot be ignored either for long-term investors, he added.
