Central bank policies remain key drivers of markets – CREATE survey

Investors responsible for some $27.4trn in assets have expressed significant concerns about the effects of central bank policies, which they feel will not only remain the key driver of global markets in the next three years, but also maintain a distorting effect on asset allocation decisions.

The views are contained in the latest annual CREATE-Research report commissioned by Principal Global Investors, titled: Investing in a debt-fuelled world.

The report is based on a survey of over 700 asset managers, pension plans, pension consultants, fund distributors and fund administrators in 29 countries. Some 100 interviews were conducted as part of the research, which considered five key questions:

   – What policy actions are likely to be taken by governments on both sides of the Atlantic to reduce their spiralling debts in the wake of the 2008 global financial crisis?

   – What secular shifts will be reshaping the investment landscape?

   – How will they affect investor expectations worldwide?

   – What approaches are likely to be adopted by investors of various stripes?

   – What can asset managers do to help their clients to manage this transition?

The report has found different outcomes with regards to the question of government debt. In the US it is being reduced by growth, but Europe’s adoption of austerity is creating a no-win situation, despite record low interest rates.
Pensions promises will be “re-written” the report suggests, as record numbers of defined benefit (final salary) schemes are shut and existing schemes require further capital injections to remain solvent.

Investor expectations will remain subdued, with other objectives than outright return being seen as increasingly important, such as capital protection, inflation protection, and regular income.

Meanwhile, asset managers will increasingly be called on to provide ‘solutions’ not ‘products’ to meet demand from clients who are not so much interested in outperforming the market through alpha, as they are in ensuring their goals are achieved.

Managers will also be increasingly asked to explain: financial literacy is improving, but most people still do not have enough knowledge to replace that of the asset manager.

Overlaying all the actitivies that may be performed is the story of deleveraging, which the report argues “will leave a lasting impact”, and which it explores through eight key themes, including:

   – A catch-22 will characterise the dynamics of deleveraging 

   – The 2008 crisis and ultra-low rates have proved the final straw for pension plans

   – New diversification is targeting a multiplicity of goals in the DB space

   – Personalisation of risks is ushering in a new era for solutions alpha

   – The next wave of innovation in the DC market will be the most ambitious yet

   – Equities, credit and real estate will remain attractive

   – Loss aversion in the West and search for high yield in the East will characterise mass market investing

   – Asset managers have to decouple marketing from thought leadership if they are to go from distant vendors to trusted advisers

To read a copy of the full report visit: create.principalglobal.com


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