Quaking pension managers juggle as markets tank

By Neil Behrmann

March 2009:- Greenwich Associates research reveals that the typical US institutional investment manager experienced a 31% slide in their portfolios in 2008.

Stunned pension, insurance, endowment and foundation investment managers are raising questions on the best way forward for asset allocation decisions, risk management practices, overall investment policies and manager selection.  Many are dumping equities, which is a pity considering the extent of the declines and much improved values. Greenwich Associates' 2008 U.S. Investment Management Study finds that in general institutions are still committed to diversified investment portfolios including hedge funds and other alternative asset classes. But the dramatic variation in performance among individual hedge funds last year has reinforced their view on the critical importance of due diligence.

US endowments and foundations that were at the vanguard of the move to diversify institutional portfolios with alternative asset classes, have taken hard knocks. Thus many of these funds, in particular are reassessing risk profiles and overall investment strategies this year.

Three-quarters of institutions rebalanced their investment portfolios last year. But rebalancing in 2009 will pose some unique challenges. First, there is the strategic question of whether portfolio managers are willing to take the step when asset values remain at depressed levels and uncertainty around the shape and pace of an eventual economic recovery, remains high, says Greenwich.  Next, even if institutions do decide to stick with their rebalancing policies, some funds might not have the liquidity needed to fully rebalance. "Large volumes of fixed-income assets are essentially still untradable, and many assets that are tradable can be moved only at a painfully deep discount," says Greenwich Associates consultant Chris McNickle.


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