Geopolitical, longevity, cyber risks take stage at conference

Increasing geopolitics, longevity and cyberattacks were just three of the rising risks discussed at the annual Pensions & Investments WorldPensionSummit conference.

Delegates from across the globe gathered in The Hague, Netherlands, Nov. 9-10 to hear some of the world's largest asset owners, academics and money management executives.

While a number of risks were discussed, geopolitics was front of mind for many of the experts — particularly given the conference took place the day following the U.S. elections, when Donald J. Trump was named president-elect.

In his keynote speech, Laurence J. Kotlikoff, professor of economics at Boston University, said Mr. Trump's plan to cut taxes and raise spending “doesn't add up,” and “could blow an even bigger hole” in the long-term fiscal gap faced by the U.S. He is hopeful the president-elect will listen to other people's suggestions once he takes the stage. However, Mr. Kotlikoff said, “I would be very concerned about investing in long-term nominal bonds of any type that are denominated in dollars.”

Pippa Malmgren, author and founder of DRPM Group, warned that geopolitical risk is global. She said anti-European Union, anti-globalization movements, have more momentum behind them “than we would like to admit.”

For others, the U.S. elections shouldn't be such a concern and “will not influence our investment strategy,” said Ronald Wuijster, chief client officer at APG Asset Management, based in Amsterdam. “Political events don't, but market events do.”

Market risks were addressed by a number of speakers, with inflation a key topic. Ms. Malmgren warned about a mismatch between inflation data and reality. She illustrated her point by discussing the increasing prices of protein foods as an indicator of inflation while central banks remain on message that inflation targets are yet to be met. “We are feeling inflation even though there is no data suggesting it,” she said. “In Norway, the price of salmon is higher than a barrel of oil.”

The conference also addressed non-investment risks. Toronto-based Don Ezra, independent adviser at Don Ezra Consulting Services and former co-chair of global consulting at Russell Investments, addressed the global challenge of longevity risk and talked through the ways individuals can offset financial risks.

He finished his speech by making two appeals: one to insurance companies, and one to financial professionals. “To insurance companies: please, please, please write longevity insurance policies, because these are the most sensible things for individuals.” He said he believes they are only available in the U.S. at the moment. And “to financial professionals: please use them when they become available.”

Panelists at a session considering the personal pension conundrum also addressed the risks for individuals, such as the self-employed and those employed by small businesses. Darren Philp, West Sussex, England-based director of policy and market engagement at multiemployer defined contribution plan The People's Pension (B&CE), said the U.K.'s move in October 2012 to introduce automatic enrollment “is to increase saving by the underpensioned” in his mind. However, he added, “the way that our auto-enrollment criteria is currently structured, along with basic fundamental labor characteristics, means that we have excluded groups even from auto enrollment.”

Giving an overarching view of non-financial risk was Lloyd Komori, Toronto-based senior vice president, risk management at the C$77 billion ($57 billion) Ontario Municipal Employees Retirement System. He said OMERS splits risk into four categories: investment, operational, pension and known-unknowns — the last three of which are non-investment risks.

In the known-unknowns category, Mr. Komori stressed “there is nothing emerging about cyber (risk) and climate change. So to call it emerging gives an indication that it is at the horizon. But that is poppycock — it is in front of us, in our face.”

While the OMERS team has identified many risks, Mr. Komori said climate change, cyber intrusion, global income disparity and terrorism are on the list of known-unknown risks that will need to be addressed. “I have been in the risk business 25 years — cyber is probably the one risk issue I have ever come across in my risk career that bedevils me,” he warned.

Paulina Pielichata contributed to this story.