The report surveying 158 pension plans globally, managing €2.9trn of assets, has concluded that a shift is occurring away from strategic asset allocation (SAA) towards dynamic asset allocation (DAA) because of a changed investment environment..
In its report titled: Dynamic asset allocation on the rise as pension plans face an era of controlled disorder, Create Research together with Amundi point to factors emerging since 2022, including “concerted steep rises in interest rates by key central banks to curb the inflation spike have ushered in a new era of volatility.”
“The mispricing of assets is widespread, leaving investors a choice in this new regime: adjust the asset mix as markets rise and fall, or leave potentially good returns on the table, duly taking into account the downsides of DAA. Investors are now buffeted by conflicting signals on key macro return drivers such as economic growth, interest rates and inflation. Capital markets are moving to a new regime as the US seeks to reshape global architecture on trade, finance and defence. The new regime might well witness fiscal dominance, rising inflation, trade tensions and pronounced volatility.”
And it adds: “For their part, ever more pension plans are advancing into their run-off phase, as the largest cohort of Baby Boomers are advancing in their golden years.”
Monica Defend, head of the Amundi Investment Institute, said: “This year’s survey revealed pension investors have entered a new regime of controlled disorder. Portfolios are potentially exposed to opportunities as well as threats, at a time when productivity-enhancing innovations are also creating winners and losers.”
According to the report, key market drivers favouring DAA include disruption from the latest US policies (83%), fears that rising trade tensions will revive inflation (62%) and worries that rising public debt will push up interest rates and harm growth (56%).
Going forward, 84% of respondents predict that the market outlook will elevate the role of DAA, and 75% expect to implement it over the next three years.
However, it will not become an either-or choice between DAA and SAA. According to one survey interviewee, “the role of DAA is to provide a portfolio ballast in high volatility regimes and not supersede SAA.”
