Why pension funds need commodity exposure
Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Why pension funds need commodity exposure

Pension funds’ need to outpace the effects of inflation has prompted growing exposure to alternative investments. Commodities look to be a good source of such diversification. But should exposure be direct or through an index? And if the index route is chosen, which benchmark is to be preferred?

Participants

RB, Watson Wyatt

   Commodities is interesting, particularly as a diversifying asset class. We’ve been talking to our client base in this area for the last few years. However, the take-up of commodities from the institutional base is still limited. I think when investors are looking at this asset class, it is from a beta, or an asset exposure perspective. But things are moving quickly and I think there are interesting alpha opportunities in this area as well as opportunities for different structures that might be more appealing than some of the benchmark indices. I want to ask Jelle, as a long-standing investor in commodities, to describe PGGM’s experience and how its investments evolved.

JB, PGGM  Our basic proposition is that we promise pensions linked to wage inflation. So we need investment returns to meet our liabilities. A lot of investment risk is equity risk – that is what the market offers, there’s a lot of liquidity there, and over the years PGGM’s allocation to equity has increased at the expense of fixed income.

But with a growing allocation to equities the need for diversification grows and so the allocation to alternatives has also grown – initially real estate, private equity.

Gift this article