Managers, funds jump into action after the U.K. vote
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Comvest closes credit fund at $1.3 billion
      Wall Street signage in the Financial District of New York
      Assets in alternative investments set record in 2020
      Non-profit questions dividend recapitalization play at Ares portfolio company
      Walker & Dunlop appoints managing director
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • Pandemic takes toll on real estate fundraising in 2020
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Insurers taking on more portfolio risk as pandemic ebbs – survey
      American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
    • Comfortable retirement still on track for most Americans despite pandemic – survey
      Pentegra joins with EPIC to offer 3(16) fiduciary services
      Interest rises in keeping retiree assets in-plan
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
    • CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
      Yale rolls out 5 principles for endowment on fossil-fuel investing
      Pension funds hear from beneficiaries on ESG – report
    • Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
      Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
    • Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
    • The seal of the Securities and Exchanges Commission at the agency's headquarters in Washington
      SEC said to review fund disclosure rules after Archegos rout
      Trillium hires 2 to lead expansion into U.K.
      CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
    • Blackstone AUM climbs 4.9% in latest quarter
      Trillium hires 2 to lead expansion into U.K.
      Credit Suisse logo
      Credit Suisse expects further hit from Archegos scandal
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
    • Denmark’s ATP plans bid to build North Sea energy island
      PennPSERS taps Verus for oversight consulting services amid probe
      State pension plan funding advances in first quarter – Wilshire
      Sacramento County Employees rebalances equity, fixed-income portfolios
    • Trillium hires 2 to lead expansion into U.K.
      Walker & Dunlop appoints managing director
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
      Philip Pearson
      Hymans Robertson chooses head of LGPS investment
    • EQT closes latest private equity fund at $18.7 billion
      U.S. $100 bills
      AlpInvest raises $3.5 billion for latest co-investment fund
      ILPA members making diversity a bigger priority in private equity
      European private equity deal value, volume hit records for first quarter
    • Pandemic takes toll on real estate fundraising in 2020
      J. Tomlinson Hill
      Two Sigma takes quant expertise into real estate investing
      BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Orange County Employees commits $55 million to 2 buyout funds
      Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
    • Orange County Employees commits $55 million to 2 buyout funds
      Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: The state of DC plans
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
June 27, 2016 01:00 AM

Managers, funds jump into action after the U.K. vote

Many see short-term opportunities, but longer-term concerns from Brexit vote

Sophie Baker
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Christopher Furlong/Getty Images
    After the U.K. vote, a torn European Union flag captures the symbolism of the referendum results.

    Pension fund and money management executives are coming to terms with the U.K.'s momentous decision to leave the European Union, embracing the opportunities that volatility is presenting but doing so with serious concerns and questions about how to move forward.

    U.K. voters' 52% call to leave the union, announced early June 24, shook markets across the globe. The FTSE 250 dropped more than 7%. The pound sterling fluctuated throughout the day, dropping more than 10%, to $1.35 in reaction. The DAX fell 6.8%, Euro STOXX 50 was down almost 9%, and the Nikkei 225 dropped 7.9%.

    See how the pound, gold and more reacted to Brexit in Charts

    With an initial reaction to the June 23 vote of shock, pension fund and money management executives agreed in the hours after the vote that they now have serious, long-term issues to consider.

    “We had seen the euro trading bloc as an improving area long term that we could invest in — we have been feathering into Europe a little bit starting last year,” said Christopher J. Ailman, chief investment officer of the $187.4 billion California State Teachers' Retirement System, West Sacramento.

    Regarding “the momentum we had toward the U.K. and Europe, this definitely causes it to wane. Where we thought we were seeing a future of opportunity long-term ... vs. Asia and the U.S., we will reassess that very much so.”

    The long-term impact to CalSTRS is “fairly profound,” Mr. Ailman noted.

    CalSTRS' asset-class directors met June 24 with their portfolio managers to review the situation, he said, adding he will meet with those directors on June 27.

    “We know our exposure to the U.K. and Europe, but we will really look at the granular level, particularly the real estate and private equity” investments, he said. While changes cannot be made overnight to private equity funds, executives could use “price fluctuations as an opportunity, but also to be more diligent on the risk. For infrastructure, with any of our long-term investments, we need to pause for reflection and thought. It has a long-term impact on the U.K. — London was, to us, really the financial center of the world. Is that going to change?”

    As a long-term investor, CalSTRS looks at “megatrends,” he said. “To use a California phrase, we look for big waves that we can ride for a long time.”

    Still attractive markets

    A long-term approach also is the norm for the C$278.9 billion ($218.2 billion) Canada Pension Plan Investment Board, Toronto, which will continue to view the U.K. and Europe as important and attractive markets, said Michel Leduc, global head of public affairs and communications.

    “We expect that the results of the vote will have an impact on the performance of markets and CPPIB is not immune,” Mr. Leduc said. “Yet, our exceptionally long investment horizon shapes how we view, measure and account for macroeconomic events and risk.”

    While the fund has a bias toward stability over uncertainty, periods of dislocation “can present compelling opportunities that short-term investors are unable to pursue,” Mr. Leduc said.

    Consultants said they are working to determine, and communicate, how their clients should respond.

    “We are not going to start trading client portfolios one way or another, but are (we) going to communicate to clients?” said David Morton, Norwalk, Conn.-based chief market strategist at Rocaton Investment Advisors. “And if so, what do we communicate? Clients know from media what's happened — the question is, "Is there some form of action we can either encourage or stop by communicating something to them?”

    While he said he's not sure clients are leaning toward changing portfolio positioning, the important question is what happens next. “Do we have one day of a blowout and then things calm down, or is this the start of a long-term downward spiral?”

    Antony Barker, director of pensions at Santander U.K. PLC, sponsor of the £9.5 billion ($13.5 billion) Santander U.K. Group Pension Scheme Common Fund, Manchester, England, said executives had increased rates hedge ratios and adjusted currency exposure, “so I'm hoping the various asset-class shifts will net off today.”

    While the fall in long-dated yields will reduce funding levels, the dispersion of the fund's private market portfolio, “which was positioned for longer-term global growth, irrespective of public market/macroeconomic malaise,” means executives still expect to deliver required returns.

    There will be a limited need to change the constituent countries in indexes, said Remy Briand, global head of research for MSCI. According to Mr. Briand, most investors use indexes that use geographic definitions. There will be “no change” to the MSCI Europe, which will continue to include the U.K.

    But, he noted, there are indexes that include only the members of the European Union that will no longer include the U.K. after Britain eventually leaves.

    MSCI modeled the potential impact from a Brexit.

    One key takeaway, according to Mr. Briand, was the impact on shares in financial companies, which fell sharply June 24. More generally, Mr. Briand recommended investors conduct more event modeling as the “rise of populism” could create more specific event risks in the global financial markets.

    Given the historical movement in currencies, Mr. Briand said “investors will start to ask should they hedge” their currency exposure more.

    Opportunity in volatility?

    Once the markets and executives got over the initial shock of the referendum result, they sprang into action.

    “As for new investment, we expect opportunities to present themselves in the coming months, particularly in real assets,” said Mr. Barker.

    Mr. Ailman said CalSTRS executives are “making short-term moves to protect the portfolio ... there will be short-term primary volatility in our foreign currency portfolio, and we will ride through these equity markets. The volatility does give us a chance — we had some long-term transitions we wanted to put on, so that gives us some opportunities to put some of those in place.”

    Some money managers have been particularly busy in the months leading up to and immediately after the vote.

    Baring Asset Management had positioned away from sterling in preparation for the vote, with about 30% of portfolio assets in overseas currencies, mainly the dollar and yen, said Marino Valensise, head of multiasset and income. “We are glad to have done (this) because the sterling position — which at some stage overnight (June 23) seemed a stupid position to have — actually protected the portfolio, (offsetting) losses coming from the equity exposure.”

    Executives will retain that position “in the belief that sterling will go quite a bit lower,” Mr. Valensise said. U.K. real estate exposure had been reduced to 8% from 10% in preparation, and will probably be trimmed further to 5%.

    In the immediate aftermath, Barings sold its 3% position in convertibles. “Usually it is a position that works well after a crisis, and not in a crisis — so we don't think it had a role to play,” said Mr. Valensise.

    Elsewhere, Baring's multiasset executives are looking at weakness in the U.S. high-yield market, “to play a strong U.S. economy without the excessive valuations of the equity market — but with a nice coupon attached to it”; the FTSE 100, due to its high percentage of revenue derived overseas; and the Japanese equity market, because any weakening of the yen will lead to a rebound in equities, Mr. Valensise said.

    Reducing beta

    Pioneer Investments immediately reduced beta in portfolios and increased exposure to some defensive areas of the equities market, “where the indiscriminate sell-off today has opened up some opportunities,” said Diego Franzin, Dublin-based head of European equities. The firm is focusing on downside protection short-term and alpha-generation medium-term.

    “This type of environment is a stock-picker's heaven — as we see high-quality companies selling off to more attractive valuation,” Mr. Franzin said.

    While Eaton Vance is not a short-term trader, “we are always looking for opportunities where asset prices disconnect from fundamentals,” said Eric Stein, Boston-based co-director of global income. “We see lots of asset price moves, and the question is how should we play that?”

    Much will be determined by the U.K. and EU's “divorce process,” he said.

    The multiasset team at PineBridge Investments made further adjustments to its portfolio, having reduced risk in European equity and other currency exposures in the runup to the vote. It had become “increasingly concerned that the market was pricing in a very high probability of remain,” said Hani Redha, portfolio manager, global multiasset in London. “We are currently assessing market price action in the context of a new landscape,” and the team has exposure to cash and risk-free assets “that can be deployed into risk assets.”

    Wouter Sturkenboom, New York-based senior investment strategist, Europe, Middle East and Africa at Russell Investments, said the firm is advising portfolio managers to stay neutral on the whole. “At the margin, for those who have the ability and inclination, we are advising them to dip a toe into risk assets under the assumption that markets are slightly overreacting on a short-term basis.”

    And Neuberger Berman LLC's Joseph V. Amato, president and chief investment officer — equity, in New York, said the firm “moved into this pretty neutral on risk ... as markets overreact” executives will look to add — or take off — risk.

    See all of P&I's post referendum coverage


    Aaron Cunningham contributed to this story.

    Related Articles
    Brexit wins: British stocks will prove winners, too
    U.S. managers' stocks plummet after Brexit vote
    Brexit vote causes U.K. pension plan deficits to soar 10% — Hymans Robertson
    Managers finding opportunities as markets tumble after U.K. votes to leave EU
    Brexit by the numbers
    Sustainalytics: Brexit could impact some ESG regulations
    U.K. markets and currency continue to drop; growth forecasts slashed in wake of…
    Asian markets 'orderly' as Brexit reinforces lower-for-longer theme
    CAIA warns Brexit uncertainty could move European hedge fund assets, staff out …
    S&P downgrades U.K.'s credit rating following Brexit vote
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center