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Pension Funds

Monetary tightening among challenges facing corporate fund execs

Daniel Blatter thinks ESG will continue to be a big focus for Swiss pension funds this year.

Monetary policy developments, geopolitics and pension fund-specific changes will be driving returns for corporate pension funds in 2019, sources said.

The current position in the monetary policy cycle "feels like an inflection point — tightening in not just the U.S., but (starting in) Europe; and for the first time in quite a while in the U.S., we now have a risk-free rate, return on cash that exceeds the inflation rate," said Steven J. Foresti, chief investment officer at Wilshire Consulting in Santa Monica, Calif.. "While I would describe that as a healthy part of markets that can expect to earn a bit of return just by holding a risk-free asset, that's something we haven't had since the global financial crisis."

The impact of monetary tightening is starting to hit the economy and "potentially dampening growth," and there is also a "fading of the pretty substantial tax reform that took place just over a year ago," Mr. Foresti added.

Daniel Blatter, consultant, head of pension fund management Switzerland, and Michael Valentine, investment consultant, both at Willis Towers Watson PLC in Zurich, said they expect Swiss funds to address a number of items this year, including the importance of environmental, social and governance factors, which "really took up a lot of air time in 2018 and we expect this to filter through into trustee meetings as public awareness of the issues surrounding climate change, plastic pollution, gender equality, etc., and member pressure increase." They also expect a continued push toward portfolio diversification.

Japanese pension funds are expected to keep front of mind 2018's market turbulence, which "made people more conscious of risk management," said Konosuke Kita, director, consulting at Russell Investments in Tokyo. "Thirty percent of our consulting clients (on the corporate side) have already (implemented a) downside protection program, and the ratio may increase if a pessimistic outlook on the market continues."

For the U.K. Brexit looms large, with Mercer conducting scenario planning.

Australian funds are waiting to see if proposed changes to superannuation funds announced in the federal budget on May 8 will be passed when Parliament resumes Feb. 12, said executives at SuperRatings Pty Ltd. in Sydney. Proposals include changes to fees and caps; and automatic consolidation under certain circumstances.

And Dutch pension funds are still awaiting an overhaul of the retirement system, since political parties involved were unable to reach an agreement on changes in November. Issues include the Dutch discount rate, extension of reitrement plans to new cohorts of workers; and increases in the state pension age.