2007 asset allocation survey

Mercer IC published its periodic asset allocation survey of European pension funds. Of the 651 funds surveyed, 75% still reside in the UK, thus the survey's cross country comparison may not be entirely reliable (via VF).

Cognitive dissonance in Germany

The cognitive dissonance refers to the results of the Fidelity REAL Index, a survey and comparison between effective and estimated retirement provisions in Germany. Whereas the Germans surveyed expect to achieve 70% of their final gross household income upon retirement, they will effectively only make 56%, which reveals a substantive gap between reality and expectations. Other interesting conclusions are available in the Executive Summary in English and the full brochure in German (both made available here with Fidelity's permission).

Similar surveys are currently being conducted in the UK and France. Watch this space.

Financial investments in commodities

Commodities investments have caught the supervisory eye, it seems. In its latest Quarterly, the BIS published interesting research about Financial investors and commodity markets. Specifically, it addresses the questions whether the exploitation of perceived profit opportunities by financial investors has fundamentally changed the relationship between prices and the physical characteristics of commodity markets and whether the broadening of the investor base has led to significant market deepening and hence affected features such as short-term price fluctuations.

The latter question is answered quite in the affirmative, while the former is more difficult to address. The BIS notes a significant divergence of long-dated futures prices (in crude oil and copper) from estimates of current marginal production costs since 2003. In efficient markets, expected marginal costs should act as anchors for long-dated futures prices. However, the research offers several fundamental reasons for such divergences, hence they are not necessarily a consequence of portfolio investments.

Annuities: a private solution to longevity risk

Its title may appear a bit facetious, but the latest issue of SwissRe's Sigma is anything but. It contains a comprehensive overview of the challenges to capital based retirement provision arising from increasing longevity. The prime focus of the publication is on insurers and insurance products, naturally, but most of its considerations and precepts are directly applicable to non-insurance pensions providers. A very worthwhile read for everyone in the retirement business!

Europe in a nutshell?

Geneva based Le Temps has an interesting piece comparing IORPs in French & German speaking Switzerland (via Vorsorgeforum). In short, -

the technical discount rate tends to be at the standard level of 4% in the Romandie, whereas it is closer to 3% in the German speaking part;

the coverage rate of state institutions tends to be lower in the Romandie, quoting the perpetuity of the state; nevertheless, full coverage is aspired everywhere

francophone funds tend to take higher risk than their German speaking counterparts, to the extent of 40% allocation vs. 30% on average, and

funds in the Romandie are quoted as more favourable to financial innovation. The only case in point given, though, is their elevated investment in ethical and socially responsible investments, which strikes us as an odd proxy for financial innovation.

Altogether, Switzerland may be seen as representing both the anglo-saxon as well as the mediterranean approach to retirement provision in one small jurisdiction with a multitude of (cantonal) supervisory institutions.