Hackney Pension Fund has taken advantage of recent market weakness and allocated roughly £50m each to emerging markets and multi-asset pooled funds in order to diversify its portfolio.
Emerging market assets are seen as useful diversifiers for an investment portfolio, but recent events in the Chinese stock market have damaged their appeal for many investors.
There’s different ways of accessing emerging markets, equity we see as still a risky place to be
Simeon Willis, KPMG
The fund agreed in July this year to invest £46.6m in emerging market equities with RBC Global Asset Management, as well as £50m in an Invesco Perpetual multi-asset product. A spokesperson from the scheme said the paperwork was being completed for the investments.
The fund first began considering a multi-asset investment in March, a year after terminating its allocation to asset manager Pimco’s global multi-asset fund due to underperformance and concerns over personnel changes at the fund.
Hackney initially invested in equities and bonds, but later decided to begin looking at new multi-asset managers.
An investment update written for Hackney by its investment consultant, Hymans Robertson, said: “Our view is that now could be a good time to reduce the fund’s overweight allocation to both equities and bonds, which was implemented post the Pimco termination, and to consider an allocation to an alternative multi-asset mandate.”
On emerging markets, the report added: “An allocation to emerging markets provides diversification away from traditional asset classes. Recent weakness relative to their developed market counterparts has provided attractive entry level.”
Our clients are more nervous but they’re beginning to recognise on a relative basis the prices have become more favourable
Gavin Orpin, LCP
The route to diversification
However, Simeon Willis, principal consultant at KMPG, said the diversification qualities of emerging markets were dependent on how they were accessed.
He said: “There’s different ways of accessing emerging markets; equity we see as still a risky place to be, we see it as a place to look for extra return rather than as a diversifier.”
Hackney Pension Fund key stats
Membership (as at March 31 2015)
Active: 7,550
Deferred: 7,903
Pensioners: 6,128
Total assets: £1.17bn
Total liabilities: £1.36bn
The appeal of emerging markets has suffered since a stock market correction in China had a sharp impact on performance.
Willis said: “China is very prominent in people’s minds [when thinking] about emerging markets, having had a really strong run which has suffered considerable falls in the last six months… it’s dampened people’s enthusiasm and that will take a long time to come back to the same extent it was there previously.”
Buying opportunity
Gavin Orpin, partner at consultancy LCP, said interest in emerging market assets had been muted, but a lack of interest was driving the price down and leading some schemes to look again.
He said: “The appetite has taken a knock with how emerging markets have performed recently. Our clients are more nervous but they’re beginning to recognise… on a relative basis the prices have become more favourable.”
Orpin added that schemes were increasingly looking to multi-asset investments as a way of reducing risk in their portfolios.
“We’ve found it very popular because one of the key risks clients had historically was equity market risk. It’s a nice first step to diversifying away from that risk.”
However, he said clients are realising multi-asset is not the only way to diversify. “They’re gradually looking for other, more illiquid areas they can exploit,” he said.
