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EXECUTIVE SUMMARY
> A fundamental shift in the ECB's communication 1/2 > A fundamental shift in the ECB's communication 2/2
> Risk-free asset", a matter of perspective > " Alternative risk premium", what do we know? > "Dividends", the new engine of equity growth?
> The impact of US withdrawal from Paris Agreement 1/2 > The impact of US withdrawal from Paris Agreement 2/2
> The contractual trust agreements - The German case 1/2 > The contractual trust agreements - The German case 2/2
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Investors on both sides of the Atlantic, having been preoccupied for several months, now have clarity on several fronts. The general perception is one of political risks having lifted; and we also note that the European economy is accelerating convincingly. But now certain underlying issues are returning to the forefront, impacting the management of Pension Funds assets in both tactical terms, and strategically.So we see two over-arching themes return to the forefront for long-term investors : on the one hand, a normalized policy mix, and on the other a return to managing market risk. This return to fundamentals is logically reflected in the orientations of pension fund managers, or in the underlying portfolios, regarding monetary policies, asset performance drivers, and risk-free rates, among other factors. First of all, the macro-economic and financial environment. A key feature of how markets evolve, particularly when driven by monetary policies, is price movements –whether inflation or deflation are occurring. Both have consequences in terms of capital preservation or future income. Over the last few months a certain number of new elements have appeared, showing not only the current inflation rates, but also improving expectations. These are already causing the Fed to react, and later the ECB, followed by the bond markets both in terms of interest rate levels, and the shape of the yield curve.
Then, portfolio construction.Against a back-drop of creativity in monetary policies having run their course - but also, in some countries, of these policies beginning to have an effect, the notion of a « risk-free rate » is again becoming crucial for CIOs and trustees in charge of strategic asset allocations. And in some cases also for the modeling out of expected returns. As risk free becomes risky….
And one must not forget the legal and regulatory framework within which Pension Funds must operate, for example in Germany: this brings us to an update on the Contractual Trust Agreement (CTA) structure. From the corporation’s standpoint, but also as viewed by employees, at a time when many «investment cases» are coming up, often involving cross-border European M&A. |