Then there’s the pension schemes. What is to be done about them? Asset managers complain that it’s an uphill struggle persuading trustees and consultants to take a more dynamic approach. Often mandates are constrained by numerous restrictions, such as not going short in the equity markets and by not investing in bonds below a certain credit rating.
“Highly constrained mandates prevent investors from taking advantage of major opportunities, such as when a fallen angel in the bond markets recovers. They miss out on the benefits of active management strategies,” says Andrew Wilson, co-head of global fixed income and currency at Goldman Sachs Asset Management.
But when the trustees finally embrace the need to diversify and to be more creative, will they also come to the asset managers with another stipulation? “We need a return on these assets of 10% that you guarantee, find a way to get it.”
This would mirror the relationship with clients in other parts of investment banks, where balance sheets are regularly used as a backstop in underwriting. Guaranteed returns would be the equivalent in asset management.
