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September 18, 2018 10:09 AM
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The largest ever New Zealand forest industry delegation to China's showcase Global Wood Trade Conference has made the case for more investment in New Zealand forestry and timber processing.
Forest Owners Association President, Peter Weir has told delegates at Chongqing that more timber processing in New Zealand, before export, reduced the overall energy and carbon emissions required to produce and transport the finished product.
"There's also a particular opportunity for primary processing of pruned logs in New Zealand rather than the current approach of mixing quality logs with sap-degraded logs and a subsequent loss of value by both parties." Peter Weir said.
New Zealand Forestry Minister, Shane Jones told the conference New Zealand is heavily reliant on access to foreign capital and also has a need to substantially increase its forest reserves.
He said this is behind the government creating a more streamlined process for investment in forestry using foreign capital and this creates a special opportunity for those interested in working with New Zealand. He invited potential investors to consider connecting with the New Zealand industry representatives.
This invitation from Shane Jones comes at a time when there is increasing concern in China with the implications of the US tariffs.
Numerous Chinese speakers at the conference referred to the trade war with the US and that they anticipated this to be a long drawn out battle.
Commentators at the conference believe the impact of increased US tariffs could cost China 1.5% of its GDP.
On the positive side, potential Chinese investors acknowledged the US trade problems were an opportunity to strengthen other trading partnerships and thus welcomed the invitation from Shane Jones.
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April 13, 2017 8:51 AM
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The California Public Employees’ Retirement System (CalPERS) is planning to consolidate its real estate, infrastructure and forestry investments into a single 13% real assets allocation. The $316bn (€298bn) pension fund is also to adopt a single MSCI benchmark for real assets, replacing the National Council of Real Estate Investment Fiduciaries (NCREIF) Open-Ended Core Equity (ODCE) index, according to board meeting documents. The changes, to be considered at its investment committee meeting next week, build on efforts to harmonise CalPERS’s real asset investments. Paul Mouchakkaa, managing investment director for real assets, will argue that the new allocation and benchmark will enable CalPERS to underwrite real estate, infrastructure and forestry investments while seeking simliar underlying investment characteristics.
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June 3, 2014 11:12 AM
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Colombia plans to double its cultivated acreage from one million to two million hectares by 2020, according to Rubén Darío Lizarralde, the country’s Minister of Agriculture and Rural Development.
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Lizarralde sees timber plantations as a primary contributor to this expansion. Even more ambitiously, the government has announced a goal of 1.5 million hectares of planted timberland by 2025, significantly higher than the estimated 370,000 hectares of timberland plantations as of 2012. With its various altitudes and warm climate, Colombia has the potential to be a substantial destination for investment in teak, eucalyptus, pine and other species.
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To achieve the government’s aggressive goals, Colombia must rely on private investment, much of which will have to come from foreign sources. The government currently has two primary tools applicable to timberland to meet its objectives: (i) direct reimbursement and subsidy of planting and growing expenses, and (ii) an exemption from income tax for new forestry plantations.
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The direct reimbursement program, the Certificate of Forestry Incentive (known by its Spanish acronym “CIF”), provides a subsidy of up to 50% of the national average of plantation costs in year one, and of maintenance costs in years two through five, for qualifying new plantations on land that was not naturally forested during the previous five years.
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Alternatively, investors can elect to qualify for the exemption from tax on income derived from new plantations made on or after January 1, 2003. This exemption cannot be combined with the CIF subsidy.
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In addition, on May 22, the Ministry of Agriculture announced a plan to propose legislation that would formalize legal title to two million hectares of rural land that currently suffer from informal or dubious legal title.
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April 8, 2014 10:14 AM
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Two Harvard-owned timberland plantations in Argentina that have attracted allegations of environmental and communal degradation have been reaffirmed with Forest Stewardship Council certification, which requires that the properties adhere to a comprehensive set of international principles regarding environmental, economic, and social impact.
The independent third-party Rainforest Alliance accredited the plantations, EVASA and Las Misiones, located in northern Argentina, on behalf of FSC.
The news comes as the Responsible Investment at Harvard Coalition, which co-authored a report criticizing the University’s timberland management practices in the region, hosts two Argentinian organizers to raise awareness of the issue on campus. On Sunday, those organizers called into question the rigor of the FSC certification and lodged additional complaints against Harvard Management Company. “We've known that the plantations have technically been certified,” Blake A. McGhghy ’17, a student leader of Responsible Investment, said. “This is not new news. But it also does not change our campaign.”
Members of the student activist organization said that the FSC certification, which is voluntarily sought by an organization, is not sufficient in determining whether basic human rights and environmental practices are upheld. The certification audit also raised several new points of non-compliance, which must be remedied by at least the next year or HMC will lose its certification.
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November 13, 2013 8:45 AM
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A growing number of pension funds are leveraging their own direct investment skills to become financial intermediaries in their own right. Is this good news? *** For example, pensions are trying to bypass financial intermediaries by developing in-house teams of investment professionals. Other funds are trying to seed new and aligned managers that provide cost-effective access points to alternative assets. And other funds are taking it even further, leveraging their own direct investment skills to become financial intermediaries in their own right. *** That’s right, the pension funds that worked so hard to dis-intermediate third party asset managers are themselves becoming third party asset managers.
Before we get into assessing whether this is a good thing, let's first see who's doing it. Here’s a list of the ones I can think of off the top of my head: - TIAA-CREF: The Teachers Insurance and Annuity Association – College Retirement Equities Fund
- QIC: The Queensland Investment Corporation
- CHIMCO: The Catholic Healthcare Investment Management Company
- VRS: The Virginia Retirement System
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Here’s something I wrote a few years ago on this topic that I think explains it rather well: "Certain institutional investors have spent the time, money and resources to build the investment equivalent of a sports car. Remarkably, this sports car can compete with the private sector’s sports car and, perhaps, even beat the private sector in certain illiquid and long-term assets, such as infrastructure, timberland, real estate, agriculture and some private equity investments. However, after building this sports car – which was really expensive by the way – the public investors have come to realize that they may not have enough gas to keep it running (or at least running efficiently). So these investors have decided to go out and find other investors (with plenty of gas money) who might like to ride in their sports car with them. As such, the investors with the sports cars take on a few additional passengers to make sure there’s enough gas in the tank. That’s the idea, and everybody is happy driving along in the sports car."
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August 9, 2013 1:14 PM
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Massachusetts Pension Reserves Investment Management Board on Thursday approved adding non-core holdings and international developed markets investments to its 10% real estate allocation.
Also, the board, which oversees $53.2 billion, will allow joint venture investments in timber and allow timber managers to invest internationally, up to a 10% limit, according to meeting documents. The board has a 4% allocation to timber and natural resources combined.
The changes were recommended by real estate investment consultant Townsend Group, which “believes the changes will allow PRIM's managers the ability to better execute in the current real estate and timber markets along the risk/return spectrum and continue investing in the future in a manner that allows for increased flexibility and execution,” according to the documents.
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May 13, 2013 10:26 AM
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The stock market rise has been dubbed by some the “idiot-maker rally,” for its gravity-defying gains despite a lack of fundamentals. Nevertheless, the Dow (DJI) now sits above 15,000 and the S&P 500 (^GSPC) above 1600, both up more than 14% this year.
When you look at the smart money, though, how are they actually making impressive returns?
Take the Yale endowment. It’s up 100% over the last decade, according to Bob Rice, author of The Alternative Answer. But in 2012, just 6% of Yale’s portfolio was allocated to U.S. equities. Half was invested in absolute return, private equity, and real asset strategies – all alternative investments - while another chunk was in emerging markets. *** Harvard, as another institutional example, has 10%, or $3 billion, of its endowment in timber, according to The Alternative Answer. In fact, it’s the biggest timberland owner in New Zealand.
Meanwhile, the average person may be taught the ideal portfolio contains 60% stocks and 40% bonds, with these asset classes representing the best returns in the long-run. *** Rice contends that the conventional wisdom about stocks and bonds is skewed. He says in the 11 decades since 1900, the 60/40 portfolio has returned “a grand sum of 1% after inflation” in seven of the decades. And while you get big bursts like in the 1980s, this distorts the long-term averages, and not everyone can wait it out 30 to 40 years so that the timing works out like it’s supposed to. *** In Rice’s view the good news is that because of changes to laws and new products, the average person can now access some of the “same kinds of things the big boys have been investing in all along and what has carried them so far.” *** In the accompanying video, he gives more details and responds to the more traditional investing gospel of gurus such as Suze Orman and Warren Buffett.
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May 6, 2013 11:33 AM
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How many times have you heard someone speak of minimising costs in the investment process? It is sexier to discuss instead the wonderful returns from investing in residential property in Hong Kong and the United States, or gold, or a host of other areas. Yet efficient investing through tight cost management is one of the keys to success. *** Now that index funds and exchange-traded funds have proliferated, especially in the past decade, it is time that investors turned their attention to the next target ripe for efficient investing: alternatives. *** As you can imagine, there is no shortage of investment products in this category: think hedge funds, private equity, venture capital, timber, oil and gas, property, structured products, the list goes on.
Here are a few ways to get investors started on the path of low-cost investing in the alternatives arena:
Read the fine print Fees, costs and expenses are typically found in offering memorandums and detailed executive summaries, but they are often not well-explained in presentations or fact sheets. *** Review the audit report Reviewing a fund's annual profit and loss statement might cause crooks to blush: you would be amazed at what can go unnoticed in the expenses section - especially my favourite category, "other expenses". *** Seek out smaller funds Not only does research show that smaller funds outperform their larger brethren, you can get a double bang for your buck by negotiating lower fees and/or revenue participation if you help a struggling manager regain their footing.
Show me the money Ask for, and receive, transparency. It has been said that anyone who does not disclose what they are investing your money in does not deserve the privilege of managing it.
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February 15, 2013 9:19 AM
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January 14, 2013 9:24 AM
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John Woolley, a retired public school teacher, recently blockaded a logging road with family and fellow islanders on Cortes Island to protect the 2,700-acre forest from an unlikely adversary—his own pension funds. Woolley is the latest kind of Vancouver Island activist: a pensioner appalled at the way his pension is being invested in the liquidation of private forest lands on Vancouver Island by companies in the portfolio of BC Investment Management Corporation (bcIMC). *** Woolley is outraged that the company managing his pension—and those of half a million other British Columbians—has moved aggressively over the last ten years into “destruction of habitat and the devastation of our forests, which is not responsible investing.” bcIMC owns 25 percent of Island Timberlands, 50 percent of TimberWest (the other half is owned by the federal Public Sector Pension Investment Board), and is a major shareholder of a Brookfield Asset Management (BAM) company that owns another 51 percent of Island Timberlands and 49 percent of Western Forest Products. *** Woolley, in correspondence with bcIMC’s Pearce, questions bcIMC’s claims as an ethical investor. Pearce claims that at 25 percent ownership, bcIMC is only a minority investor, and therefore has no say in day-to-day operations. Woolley argues that “does not excuse blindness to corporate responsibility.” But Pearce says Island Timberlands operations meet ethical investment standards under Sustainable Forestry Initiative (SFI) certification, a certification that leading market campaigner and Cortes Islander Tzeporah Berman has plenty to say about.
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January 8, 2013 3:27 PM
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Suzano Papel & Celulose SA, Latin America’s most indebted pulpmaker, is considering the sale of farmland and forestry assets to reduce leverage, Chief Financial Officer Alberto Monteiro said.
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December 16, 2012 9:04 AM
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Ohio Police & Fire Pension Fund is adding a 5% allocation to master limited partnerships and decreasing its equity exposure as the result of an asset-liability study.
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Timber was raised to 5% from 3%, while global inflation-linked bonds increased to 13% from 12.9% and private markets increased to 8% from 7%.
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December 10, 2012 7:22 AM
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Pension executives and other institutional investors are split between raising allocations to real assets or maintaining their allocations amid concerns about equity market volatility and inflation, a Pensions & Investments' survey shows.
The survey of P&I's Research Advisory Panel showed 51% respondents plan to maintain their current target allocation to real assets in the next three to five years, while 46% plan to increase their targets. (The remaining 3% plan to decrease targets.) *** The attraction of real assets focuses on risk-protection characteristics. Among the respondents: - 49% invest or would invest to provide an inflation hedge;
- 24% invest or would invest to decrease their portfolio's risk profile; and
- 12% invest or would invest to increase their portfolio's return profile.
For real assets investors, performance has been in line with expectations. But 10% said real assets have performed above expectations, while 21% said they have performed below expectations. *** Bernard McNamara, executive director, global real assets, J.P. Morgan Investment Management Inc., New York, predicts allocations to real assets “could rise to as high as 25% or more of overall portfolios,” which should be diversified over a wide swath of the real assets spectrum. *** Mr. McNamara defines real assets as “large-scale, long-life, tangible, productive, capital-intensive investments like real estate or infrastructure ... whether it's regulated utilities like natural gas distribution or electricity distribution or water or waste water management, transportation assets ... ports, airports, toll roads, contracted power generation timber, farmland.” *** “The whole idea is to do better than bonds,” Mr. Forestner said. “Right now for core assets, it's high-single-digit type of numbers, something in the neighborhood of 8% is doable. That's pretty attractive. ... When people are looking at a bond universe that offers fairly paltry returns, looking at something (real assets) in that 6% to 8% range for core assets looks really good.
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September 20, 2017 4:35 PM
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Harvard University’s endowment delivered an 8.1% return in the latest year, marking another disappointing year for the world’s richest school. While the performance was better than a loss of 2% in fiscal 2016, it trailed results announced thus far by other schools. “Our performance is disappointing and not where it needs to be,” wrote N.P. “Narv” Narvekar, Harvard Management Co.’s new chief, in the endowment’s 2017 annual report Tuesday. The returns are a “symptom of deep structural problems” that are likely to continue to depress the $37.1 billion endowment’s returns going forward, he wrote. *** A driver of Harvard’s underperformance stemmed from losses in its natural resource portfolio, Mr. Narvekar wrote. That global portfolio, which includes timberland and vineyards, was long a meaningful contributor to the endowment’s returns and was valued at roughly $4 billion a year ago. The markdown follows a 10% write down in natural resources in the prior fiscal year and represents a dramatic change of view by the new leadership on the investments. That portfolio will take “multiple years” to overhaul, Mr. Narvekar said.
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April 21, 2016 11:00 AM
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The California Public Employees’ Retirement System (CalPERS) has established a ‘harmonised’ real assets strategic plan for the next five years. The $293bn (€259bn) pension fund said the plan largely continues the investment goals and parameters of its existing real estate, infrastructure and forestland programmes, but increases harmonisation while reducing risk and complexity. “The unifying elements of this strategic plan will make the asset class less complex to manage, and make reporting more transparent,” said Paul Mouchakkaa, managing investment director for real assets.
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The plan also outlines ESG integration goals for the next five years, including manager expectations, risk assessment, and research. Real assets benchmarks, the role of the fund’s forestland programme and real assets allocation will be examined next year.
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April 14, 2014 10:02 AM
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The Responsible Investment at Harvard Coalition held a rally Friday afternoon on the steps of Widener Library and Massachusetts Hall to protest the University’s management of timber plantations it owns in Argentina. The rally comes after much debate over the plantations, including allegations of mismanagement in the fall and the announcement of the recertification of the plantations last week.
Throughout the afternoon, students and community members chanted, marched, and held signs, which read “Harvard be transparent,” “Faust: no more land grabs,” and “We’re yelling timber, you better move.” After several members of the Harvard community, including the Undergraduate Council President and a Harvard alumnus working on the City Council, spoke to the protesters gathered in front of Widener, the group marched to Massachusetts Hall, which houses the University’s central administration and President Drew G. Faust’s office. A delegation from the group entered Massachusetts Hall with a petition containing 1,150 signatures, formally asking Faust to change the University’s management of its plantations.
The protests were a part of Responsible Investment at Harvard Coalition’s week-long SHAME Tour, which seeks to “stop Harvard’s Argentine mismanagement and exploitation,” according to the organization’s website. As part of the demonstration, the coalition flew two leaders from local communities in Argentina, Adrian Obregon and Emilio Spataro, 4,884 miles to Harvard’s campus.
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December 9, 2013 4:13 PM
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CalPERS is attempting to increase allocations to infrastructure investments and timber, assembling what is believed to be the largest infrastructure investment staff among U.S. pension funds.
For the $277.3 billion, Sacramento-based California Public Employees' Retirement System, expanding investments in both areas is part of a continuing effort to diversify assets, serve as an inflation hedge and provide a cash yield for the pension fund.
The initial infrastructure investments were made after the financial crisis, when executives searched for investments not correlated to plunging stocks and bonds.
CalPERS had purchased and sold some timber assets (which officials of the pension fund call forestland) before the financial crisis, but made new investments as part of the asset diversification effort in 2008. However, CalPERS executives have not made any new forestland investments in five years and instead have put more focus on increasing infrastructure assets. *** He said his expanded infrastructure team, with expertise in transportation and power projects, is looking at power plants, airports, parking facilities and toll roads as potential investments.
Plans for expansion of the fund's forestland investments are not as advanced. CalPERS has $2.2 billion invested in timber, just two-tenths off its 1% allocation.
While infrastructure has produced overall robust returns — an annualized 18.9% for the three years ended June 30 compared to its custom benchmark of 6.7% — timber has fared poorly, producing an annualized -2.8% vs. 3.6% for the benchmark NCREIF Timberland index during the same period.
Mr. Mullan said the forestland portfolio, almost 80% of which is in the southern part of the U.S., has been severely affected by the downturn in the housing market.
Mr. Mullan said the timber program has been understaffed; until recently, there was only one staffer, working part time on the portfolio. He said an additional, dedicated employee was hired for this month, but acknowledged that might not make an immediate difference because substantial tracts of timber rarely come onto the market.
He said one option he and the new staffer will be exploring over the next year is to expand the timber program to include other investments, such as agricultural, water or other natural resources.
CalPERS is the largest U.S. defined benefit plan and one of the largest institutional investors in the world, making its consultants and executive staff question whether its allocations to infrastructure and timber are too small to make a difference in the fund's overall performance.
“Significantly, it does not really move the needle,” Allan Emkin, managing director of Pension Consulting Alliance, said at a CalPERS investment committee workshop last month. ”You're looking at a basis point in one direction or another and there's resources, there's time, there's oversight; why do it?” PCA is one of CalPERS' investment consultants.
In an interview, Mr. Emkin said he is not against starting small with infrastructure, but said it's not going to be worth it in the long term if CalPERS cannot get its allocation to at least 5%.
Mr. Emkin said he believes the same about timber.
Mr. Mullan said he agrees growth needs to occur in both asset classes. While a new plan needs to be developed for timber, he believes the infrastructure team can grow its assets substantially over the next decade.
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September 27, 2013 5:27 PM
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Most investment funds that own Woodlands make their money when the trees are cut down and carted off. Ecotrust Forest Management, based in Portland, Ore., also profits from the natural habitat left untouched in the forest. The small fund harvests trees far more selectively than in traditional forestry and then picks up additional income by selling everything from carbon credits to brush undergrowth for floral arrangements.
Ecotrust’s CEO, Bettina von Hagen, believes the approach renders woods more resilient—both ecologically and financially. Since inception in late 2004 through the end of 2012, her Ecotrust Forest Fund I, with $30 million under management, notched average gross returns of 10.6% per year through December 2012, according to third-party appraisals. The fund’s fee is 1.25%.
Like most timberland funds, Ecotrust calculates its returns by toting up the cash from trees that were cut down for wood and the appreciation of the land and the trees still growing on the property. But this fund also receives ancillary benefits from tax credits. In comparison, a commonly used timberland index produced an average annual return of 8.17% during the same time frame.
Ecotrust’s investors include some high-profile names like the Packard Foundation and Patagonia founder Yvon Chouinard.
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June 28, 2013 10:43 AM
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Pension funds and other asset owners, along with their money managers, need to transform their investment process to promote sustainability in the economy, an approach that would redound to more stable and enhanced long-term value creation,according to a set of guidelines released Wednesday by Ceres.
Through a comprehensive integration of environmental, social and governance factors into the investment decision-making process, institutional investors could better manage looming risks and potential opportunities that include climate change, extreme weather, resource scarcity, population growth as well as human and labor rights, according to the course of action laid out by Ceres, a coalition of investors, environmental groups and other organizations that work with companies to address sustainability issues, including climate change.
“The 21st Century Investor: Ceres Blueprint for Sustainable Investing” — a 56-page report available at Ceres' website — was put together in consultation with or feedback from major public pension funds, investment advisory firms, investment consultants, among others. *** Mindy S. Lubber, president of Boston-based Ceres and director of its Investor Network on Climate Risk, said in a separate statement in the report: “Today, rapidly accelerating climate change, dwindling water supplies, supply chain breakdowns, population growth and other sustainability challenges pose enormous, unprecedented risks to the global economy. But they also have created enormous economic opportunities in renewable energy, efficiency technologies, resilient infrastructure and other solutions to these challenges.”
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May 13, 2013 9:39 AM
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Large institutional investors increasingly are “insourcing” asset management to improve returns by cutting costs.
That's the opposite of the trend toward smaller institutions outsourcing some or all of their investment operations. Among the large institutional investors shifting more assets to internal management, known as insourcing, are the $258.3 billion California Public Employees' Retirement System, Sacramento; the $27.3 billion South Carolina Retirement Systems, Columbia; and the $78.1 billion North Carolina Retirement Systems, Raleigh. *** The cost savings of switching to insourcing are significant, according to analysis of Dec. 31, 2010, data by CEM Benchmarking Inc., Toronto: - The median cost for internally managed active equity strategies was 10 basis points, vs. 40 basis points for externally managed strategies.
- For fixed-income strategies, the median internal cost was three basis points compared with 18 basis points for external.
- For real estate, the median internal cost was 21 basis points vs. 75 basis points for external and 134 basis points for an external fund of funds.
- In private equity, the median internal cost was 25 basis points vs. 165 basis points for external and 244 basis points for external funds of funds.
*** Chief investment officers stress that the real goal is cost savings that lead to better investment returns. “There is really strong evidence ... that funds that can manage assets internally have an advantage,” Joseph Dear, CalPERS CIO, said during a presentation in late April at the Milken Institute Global Conference in Beverly Hills, Calif.
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April 26, 2013 1:15 PM
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Ohio Police & Fire Pension Fund, Columbus, committed $50 million to USAA Eagle Real Estate Fund, confirmed spokesman David Graham.
The commitment to the tactical real estate fund, managed by USAA Real Estate, is part of the $13.1 billion pension fund's efforts to reach a goal of a 50-50 split between strategic and tactical investments within its real estate allocation. *** Separately, the pension fund committed $100 million to Global Timber Investors 10. It is a first-time commitment to a Global Forest Partners fund.
[Real estate consultant] Townsend [Group] and general investment consultant Wilshire Associates assisted.
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January 30, 2013 1:10 PM
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The California Public Employees’ Retirement System (CalPERS) today launched, in partnership with University of California, Davis, the Sustainable Investment Research Initiative (SIRI). The initiative is an effort to drive innovative thought leadership that will inform and advance the organization’s understanding of sustainability factors and the impact they have on financial performance.
Today’s launch also marked the start of a Call for Working Papers from scholars and investment practitioners globally in the fields of finance, economics, accounting, law and business. The papers will contribute to a rigorous debate and discussion on the impact of environmental, social, and governance (ESG) issues on long-term value creation and capital market stability. *** In 2011, the CalPERS Board approved integrating ESG issues as a strategic priority across its investment portfolio. It is grounded in the three forms of economic capital – financial, human and physical – that are needed for long-term value creation, according to the pension fund’s 2012 report, “Towards Sustainable Investment.” SIRI will provide independent evaluation and insight for CalPERS sustainability strategy, as well as contribute to the larger debate.
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January 8, 2013 4:04 PM
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Hertfordshire County Council Superannuation Fund, Hertford, England, hired LGT Capital Partners to run up to £300 million ($486 million) in multiasset alternatives, confirmed Patrick Towey, head of specialist accounting at the council.
The £2.4 billion pension fund issued an RFI in April for a manager to run a broad range of alternative asset categories, such as active currency, commodities, emerging markets debt, global tactical asset allocation, high-yield bonds, infrastructure, private equity and timberland.
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January 4, 2013 9:07 AM
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One of the most sophisticated pension fund investors in Europe has welcomed its national regulator's calls for improved supervision and oversight on allocations to alternative assets. *** The FSA sent a "Christmas Letter" to these investors asking them to examine how and with what frequency they evaluate alternative investments, taking into account the risk/return benefits and their own sensitivity to the allocation. The regulator said that due to the low yield environment, increasing numbers of institutional investors were turning to alternatives for higher returns and for this reason it wanted to ensure they understood the complexities involved
ATP's alternatives head, Ulrik Dan Weuder, said: "The regulator wants pension funds to better explain how they evaluate these investments - and how they monitor them. It is a positive step as investing in alternatives is a complex business. Although the fund manager (if one does not invest directly) makes many of the decisions, the end investor should be able to answer detailed questions on the investments (strategy behind the investment, investment risk, revenue drivers etc.), if they cannot, they should not be investing there."
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December 14, 2012 10:21 AM
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Prospects of a continuing weak economy, unstable equity markets and low interest rates are upending traditional asset policy and will drive investors to raise allocations to real assets, said Bernard McNamara, executive director, global real assets, J.P. Morgan Investment Management Inc., New York.
“Look at the investment landscape these days. There is what I would characterize a unique constellation of challenges facing investors and their portfolios,” Mr. McNamara said.
“One is low-yielding bonds, with the 10-year Treasury sub-2% for now and the foreseeable future. Another (challenge) is in the equity portions of their portfolio, (with the) highly volatile and highly correlated equity markets across the globe,” he said.
“A third is generally low-growth prospects in developed markets. If you are looking at the U.S. and other developed economies, we're looking at real GDP growth rates for now and the foreseeable future in the range of 2% to 3%, well off the high growth of the '50s, '60s and '70s,” he said.
“A fourth challenge is what we call the looming specter of inflation. Inflation has been relatively contained over the last 30 years. … But if you look at all the liquidity that has been injected in the financial system (in recent years) we argue that inflation is at least a medium-term threat. It's hard to predict when it's going to spike. But what we say is one thing is for certain: That is, when it does hit it will be painful for portfolios that aren't prepared for it.”
“Each of those challenges ... can be addressed in varying degrees by real assets,' Mr. McNamara said.
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