A solution to allocation dilemmas

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Unigestion’s Hanspeter Bader sees private equity helping institutions struggling with asset allocation in a hostile climate.

Hanspeter Bader (pictured) leads Unigestion’s funds of private equity funds unit. However, when it comes to explaining how private equity can help an institutional clientele manage capital allocation problems, he first mentions mainstream asset classes.

“Many pensions are still under-covered regarding ­private equity, but their risk tolerance is low,” Bader says. “Insurance companies have risk budget issues on one side and Solvency II requirements on the other. Banks face Basel III.

“All this means many institutions have reduced risk in their assets,” says the managing director and head of private equity at the $13.6bn diversified Swiss asset manager.

Despite the 11.6% global stock rally to March, many institutions are still underweight public ­equities – despite the superior long-term growth prospects – and prefer cash. This strategy loses them money in real terms – and long-dated G7 debt – with yields often sub 2%.

“Personally, I believe what many [institutions] are doing by shifting so much capital into fixed income and interest rate-sensitive assets is hugely dangerous,” says Bader.

“For pensions, there is a large risk they will not achieve the returns they need over the next 20 years, and [with heavy fixed income allocations] ­systematic risk is increasing because every insurance company runs the same models. When a crisis comes they will be driven to react in the same way, at the same time.”
What allocators need, he suggests, is long-term growth and a dose of non-correlation.

‘Pensions time bomb’

This need was recognised by Europe’s Venture Capital Association (EVCA) in February, when the EC suggested European pensions fall under the kind of rules of ­Solvency II that tilt insurers even more heavily towards fixed income. Klaus Bjorn Rühne, chairman of the EVCA, said Europe faced a “pensions time bomb”.

“Making it too costly to invest in long-term growth – through private equity, venture ­capital or infrastructure – is clearly not the way to defuse this,” Rühne added. Bader, whose unit manages $2.4bn, says: “Investors are at a very dangerous moment in terms of their asset ­allocation.”

Bader’s team is one of four main units available to ­Unigestion’s clients. The others are a fund of hedge funds unit running $3.6bn; a minimum variance unit with $5.9bn under management; and a family investment office ­managing $1.7bn.

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