Last year I asked for the following things in my stocking but fear you read my letter upside-down: higher yields, lower inflation, rising markets and stronger sponsors. However, thank you for providing opportunities for pension schemes to become social capitalists and also for improving the communication and collaboration across the industry.
This year, I have left tennis lessons with Rafael Nadal off the list to make room for much smaller gifts: a Eurozone resolution, lower volatility and the agility to act on opportunities.
Every year as we await your arrival there are many men dressed up as Father Christmas handing out gifts from their shopping centre grottos. So it was a nice surprise to see you dressed up as many men to deliver an early Christmas present to the Eurozone this year – €489billion of 3 year loans to 523 banks. This extra liquidity will certainly buy time for governments to find a solvency solution, such as reviving growth or reducing spending or (somehow) both.
Restoring confidence in the Eurozone will really help UK pension schemes who have been impacted by the rise in UK government bond prices. This letter may arrive too late for your elves to produce a full Eurozone solution, but perhaps you could provide UK schemes with an opportunity to hedge their liabilities at more attractive prices in the coming year.
Economic uncertainty has led to a sharp rise in volatility since you last visited us. This extra risk has not always been rewarded with increased returns as one would expect. This means more and more pension schemes are flying below their flight plan to full funding at a time when their sponsor may also be impacted by the ongoing market turbulence.
Please could you bring us some certainty and deliver us from volatility!
Act on Opportunities
One effect of increased volatility has been that pension schemes are looking beyond traditional assets for new sources of enhanced and/or long-term returns. Having provided some win-win opportunities in 2011, such as the UK’s National Infrastructure Plan, the next year must see delivery of cash-for-projects.
For pension schemes to fill the infrastructure funding hole left by banks and governments, it will require co-operation between a number of parties as well as a thorough understanding of the risks and rewards involved. Please can you sprinkle some Christmas spirit over these discussions and provide decision-makers with the Agility, Control and Transparency needed to fulfill the country’s infrastructure wish list!
If there is room in your sleigh, I would really appreciate those tennis lessons I mentioned earlier.
Very best wishes,
Robert, aged 33