The U.S. remains a key economy for global investors, although deglobalization and political risks are adding complexity to investing in general.
CEOs and CIOs debated whether the U.S. would retain its dominance in the coming years as part of a panel discussion on a "New Approach for a New Decade" at the Pensions & Investments WorldPensionSummit on Monday.
"For us, the U.S. is still very key, a very important economy for us," said Rohaya Mohammad Yusof, CIO at the Employees Provident Fund of Malaysia, Kuala Lumpur, which had 924.8 billion ringgit ($224.9 billion) in assets as of Dec. 31. She said 45% of the fund's global equity allocation is in the U.S.
EPF executives do not see "any threat" to the U.S. dollar as the main reserve currency, since the euro's "financial market is quite fragmented," the Chinese currency is not really "tradeable" and changes would need to be made to the financial system to make another currency the reserve, she said.
For Marcus Billing, CEO at Sweden's 893 billion Swedish kronor ($100.7 billion) Alecta Pensionsforsakring, Stockholm, "the globalization that we have been seeing for so many years pre-pandemic is potentially coming to an end, or at least slowing down or reversing a little bit," he said. "I think we will see more of a reorganization. That is adding a complexity to the investment process. It adds also potentially some political risks. I would argue that the friction we see between the U.S. and China today is based on the technology race, the standardization of technology to a large extent. How can you then invest into some interesting Chinese technology companies, for example, without taking too much political risk?" Mr. Billing said.
For some pension funds, underweighting exposure to the U.S. has been a "disastrous strategy," said Mark Fawcett, CIO at the £13 billion ($16.8 billion) National Savings and Employment Trust, a defined contribution multiemployer plan based in London, speaking on the same panel. "I think all regions have their challenges (and) it is very easy to over-focus on one particular challenge or dimension and allow that to skew your portfolio."
In the U.K., there has been a tradition for pension funds to be underweight the U.S., "as they view it as expensive," and overweight the U.K., "as it feels safe." But investors have to take a diversified and balanced view, he said.
The panel also debated the issue of climate change and its impact on portfolios. "If we don't get climate change under control, the cost of retirement is going to go up," Mr. Fawcett said, adding that NEST executives are taking steps to address heavy investment in fossil fuels within the portfolio.
Climate change was also the focus of Monday's keynote session. Christiana Figueres, founding partner of Global Optimism and former executive secretary of the United Nations Framework Convention on Climate Change, encouraged investors to continue to work toward decarbonization of their portfolios.
"Decarbonizing portfolios is not only the right thing to do (morally) — but in addition to that, it is also the right relationship between risk and reward today. We are already in a new world where we do not have to choose between rate of return and rate of contribution to the solution," she said.