Asset owners and money managers at Pensions & Investments' 10th annual Global Pension Symposium in Tokyo said active management has a key role to play in helping pension managers navigate a looming period of low returns and heightened volatility.
“Invest in talent,” advised Gregoire Haenni, Geneva-based chief investment officer of the 11.4 billion Swiss franc ($11.5 billion) public pension fund CPEG, Caisse de prevoyance de l'Etat de Geneve, in a speech kicking off the conference's second and final day on Nov. 16.
Passive strategies have gained market share in recent years, but “there are very talented managers in the industry” and now is the time “to invest in the right manager, with the right strategy, in the right geographical region, rather than being exposed to the broad market,” Mr. Haenni told attendees.
In a Nov. 17 interview, keynote speaker Karen McQuiston, head of institutional advisory and solutions at Newark-based Prudential Financial Inc.'s investment management arm, PGIM, agreed that the current moment “could be a good time for active managers.”
PGIM's research on active management cycles suggests the current market environment — with ample room for spikes in equity market volatility — could be one “in which active management works” to cushion volatility.
That message got decidedly mixed — if only in a symbolic way — as the conference drew to a close, when an executive with Japan's ¥129.7 trillion ($1.2 trillion) Government Pension Investment Fund, Tokyo, told attendees the GPIF had decided to count its fast-growing allocations to smart beta domestic equity strategies as passive, rather than active.
In a subsequent e-mailed reply to questions, Shinichiro Mori, deputy director-general of the GPIF's investment strategy department, said since the April start of the current fiscal year, the fund had changed its definition of active and passive investments to count any strategy that aims to track an index, rather than outperform it, as passive — even if that index deviates from market-cap weighted strategies.
With that decision, the fund's S&P Global Intrinsic Value index-benchmarked allocation to Goldman Sachs Asset Management, which had grown to ¥1.575 trillion from zero over the two years through March 31, and its Research Affiliates Fundamental index-benchmarked allocation to Nomura Asset Management, with ¥1.252 trillion, were shifted to the passive column from active. The move effectively halved GPIF's active domestic equity allocation to 2.1% of its overall portfolio.