Panel
London Summit 2015 - Institutional Investors: Examining the Long Term (I)
Milken InstituteDavid Blood, Stefan Dunatov, Torben Möger Pedersen, Eugene O'Callaghan, Stefan Diletov, Trevor Kalserdine, Scott Young, Faith Ward, Ekaterina Scharschitz, Steve
- Asset valuations are expected to either mean revert or collapse to normalize returns, though a paradox scenario with persistently high valuations and low returns is also considered plausible over the long term.
- Investment allocations are projected to shift toward liquid non-listed assets such as private debt, private equity, and property, with non-listed exposure targeted to reach between 40% and 45% within the coming years.
- Low interest rates and low growth are anticipated to persist for an extended period, creating a competitive environment for alternative infrastructure assets that may risk the formation of a new bubble.
- Pension funds are expected to increasingly form club structures and develop internal capabilities as direct investors and asset owners to access assets and manage risk, potentially relying on external advice to improve board composition.
- The Ireland Strategic Investment Fund plans to reduce equity weighting and purchase equity put options over a three to five year transition period, while intending to drop options and hedging strategies in the fairly near term due to costs.
- Fund liquidity restrictions prohibit withdrawals before 2025, after which the Minister for Finance may withdraw up to 4% of the fund's value as dividend-type payments, with a target return of approximately 4% expected to potentially be exceeded.
- Portfolio strategies will prioritize diversification across economic outcomes over a 10 to 20 year period, including a shift from nominal debt to inflation-linked debt to address uncertainty regarding quantitative easing unwinding and potential inflation.
- Future asset allocation will focus on sectors where Ireland holds a competitive advantage, specifically food and agriculture, renewable energy such as tidal power, and sustainable office buildings classified by energy and climate effectiveness.
- Operational models for infrastructure will increasingly utilize public-private partnerships and risk transfer mechanisms where turbine providers assume performance risk to mitigate technological exposure.
- Sustainability and ESG principles are predicted to gain significant focus, driven by the competitive advantage of sustainable investment cases and upcoming international forums like the COP21 in Paris mobilizing private funding for emerging markets.
- Political risk is viewed as having risen significantly compared to 15 years ago, while economic impact regarding GDP and employment is expected to be amplified by investment activities, particularly for workers with horizons extending to the year 2100.
- Good governance is linked to environmental and social practices, with expectations that sustainable building operations will prove more cost-effective than traditional constructions when energy costs are factored in.
- Blended finance structures involving governments and private investors are considered on the brink of a breakthrough, with a specific expectation that the COP21 conference will mobilize private funding for emerging markets within a few months.