Press Releases

UK, March 18, 2009 - Co-ordinated policy responses from governments and central banks around the world to provide liquidity and short-term funding to the financial system have not been effective in the face of unwillingness by financial institutions to lend and householders’ propensity to save and not borrow according to Watson Wyatt. In a note produced by its Global Investment Committee, entitled the long-term dynamics of economies, the firm maintains that risks to the real economy have increased in the past six months and that normal dynamics of a cyclical economic recovery are significantly impaired.

Robert Brown, chairman of the global investment committee at Watson Wyatt said: “While admitting considerable uncertainty about the economic and market outlook, understanding the dynamics that are currently driving the major economies is critical for the positioning of long-term investors. We think the fall in growth will not be quickly fixed as it is the outcome of structural debt problems accumulated during the past decade.”

The firm expects the price moves of ‘risky assets’, notably equities, to continue to mirror the economic picture as they have done recently and that falling demand will increase pressure on corporate profits resulting in a wave of ratings downgrades and corporate credit defaults.

Robert Brown said, “In general, the aggregate risk/reward trade-off still does not look favourable and staying at the lower level of risk ranges is advisable for most investors. The current economic problems are structural in nature and will take time to sort out; so long-time horizons will be needed to benefit from these dislocations.”

The firm is advising investors to weigh their beliefs about long-term investment against their ability to adapt their thinking as circumstances change.

Robert Brown said: “For those with the ability to be more dynamic in their long-term asset allocations, we still advise staying at the lower end of their risk range. However, they should seek, where possible, to take risk in investments that have a more senior position in the capital structure, which have less downside or may benefit from a liquidity premium in areas such as secured loans and high-quality investment grade cash bonds.”

Notes to editors

The Global Investment Committee’s role is to identify appropriate investment opportunities for the firm’s clients and is responsible for views on asset classes, risk/return dynamics and correlation assumptions. It is supported by a number of internal research teams which provide analysis of economic theory and capital markets; primary asset class research; and longer-term views and new investment thinking.

For further information please contact:

Paul Deane-Williams
Head of Public Relations - Investment
Watson Wyatt Limited
+44 (0)1737 274397
paul.deane-williams@watsonwyatt.com

Gay Collins, Lauren Stewart
Penrose Financial
+44 (0)207 786 4888
watsonwyatt@penrose.co.uk

About Watson Wyatt Investment Consulting

Watson Wyatt Investment Consulting, a division of Watson Wyatt, is focused on creating financial value for institutional investors through independent, best-in-class investment advice. We are specialist investment professionals who provide co-ordinated investment strategy advice based on expertise in risk assessment, strategic asset allocation, and investment manager selection. Watson Wyatt Investment Consulting provides investment advice to some of the world’s largest pension funds and institutional investors, and has more than 550 associates in Europe, the Americas and Asia.

In the US investment advisory and investment consulting services are provided by Watson Wyatt Investment Consulting, Inc., which is a subsidiary of Watson Wyatt Worldwide Inc. Watson Wyatt Investment Consulting, Inc., is a registered investment adviser with the Securities and Exchange Commission.

About Watson Wyatt Worldwide

Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world’s leading organisations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 32 countries and is located on the Web at www.watsonwyatt.com.