“What Matters in Global Markets” is designed to provide a regular update from Watson Wyatt’s Global Investment Committee on economic and market views.
“What Matters in Global Markets” is designed to provide a regular update from Watson Wyatt’s Global Investment Committee on economic and market views.
Economics concerns the allocation of scarce resources. No scarcity, no economic problem—everyone can have as much as they desire. In more colloquial terms, economics is about how to portion out the cake. As dividing a growing cake is a much more pleasant problem than dividing a static cake (or, heaven forbid, a shrinking cake), much of economics is about growth.
As the recent market crisis has unfolded, one area of the private equity landscape that commentators suggested would inadvertently benefit from the market conditions was secondary funds and their limited partners (LPs). The reality to date appears to have been somewhat different, with very few transactions clearing the market (at the time of writing) due to a continued dislocation between buyers’ and sellers’ pricing expectations. The purpose of this paper is to explore this dynamic and consider the prospects of the secondary market moving forward.
As the recent market crisis has unfolded, one area of the private equity landscape that commentators suggested would inadvertently benefit from the market conditions was secondary funds and their limited partners (LPs). The reality to date appears to have been somewhat different, with very few transactions clearing the market (at the time of writing) due to a continued dislocation between buyers’ and sellers’ pricing expectations. The purpose of this paper is to explore this dynamic and consider the prospects of the secondary market moving forward.
Negotiating terms has previously been challenging due to limited capacity in high quality general partners (GPs) and the restricted ability of limited partners (LPs) to pool their bargaining power. The former has clearly contributed significantly to the latter.
Superannuation funds and other institutional investors are at the nexus of some of the biggest issues facing the investment industry: demographic change, globalisation, the emerging wealth transformation. Superannuation fund boards and many other institutional investors typically contain a diverse group of individuals, with differing skills, representing differing stakeholders and using different styles of decision making. Against this background effective board leadership is essential in making full use of the finite resources available to achieve the pension fund mission in a rapidly changing environment.
Recent events have provided a timely reminder that investment markets can often behave in an erratic, unpredictable fashion. Institutional investors have been hit hard, and many are asking whether there was any way that the turmoil could have been predicted, and preventative action taken. Not surprisingly therefore, in recent times we have seen a surge of interest in Dynamic Strategic Asset Allocation.
In this paper we introduce an innovative monitoring tool called a fund dashboard. We describe how it can help trustees to improve governance by ensuring rigorous monitoring of all aspects of fund investment, directing attention to issues of the highest priority and assisting with efficient meetings and decision making.
Value at Risk (VaR) has become a very popular and much-used risk measure in defined benefit superannuation and insurance fund risk management. While VaR carries obvious merits, it also has limitations as a risk measure. We examine some weaknesses in using VaR, such as the reliance on historical data and the failure to adequately reflect the benefit of risk diversification. We propose the use of an additional risk measure, Conditional Value at Risk (CVaR), to give a better understanding of risk.
In this paper we suggest that active investment managers are facing increasing pressures on profitability. Absent a strong and sustained market rebound, there is likely to be considerable change among asset management organisations. This would disrupt asset owners’ portfolios and so we suggest some actions that can be taken now to prepare for such an eventuality.
In recent markets, we have seen a number of managers with strong long-term track records produce performance ‘way off the scale’, in other words underperformance of more than two times the expected tracking error. The key question many clients are asking is at what point is the result so bad they just have to move on. This note offers a general framework for answering that question.
Following the very negative returns from almost all risky assets in 2008 and the first two months of 2009, many institutional funds that have a fixed weight strategic asset allocation policy will now find themselves substantially underweight to riskier assets compared to more defensive assets, unless they have been following a rebalancing policy. For those funds that have not been following a rebalancing policy, or for those funds that are still underweight to risky assets, the question now is whether they should rebalance back to their strategic benchmark.
The purpose of this note is to provide an update to our 31 October 2008 outlook paper on hedge funds, to inform clients of the latest developments occurring in this arena and to provide more colour in terms of timing of prospective capital allocations.
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