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REGULATORY CHALLENGES FOR LONG TERM
ILLIQUID ASSETS
OECD / APG / RISKLAB WORKSHOP
7 APRIL 2014
John O'Brien
Partner
Dublin...
MERCER 108 April 2014
Regulation and real assets
Response to speaker
• Pensions is a very fragmented market in Europe, c14...
MERCER 208 April 2014
Regulation and real assets
Response to speaker
• Difficult to completely divorce regulation from mar...
Mercer (Ireland) Ltd., trading as Mercer, is regulated by the Central Bank of Ireland. Registered Office: Charlotte House,...
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Regulatory challenges for long term illiquid assets - John O'Brien - OECD-Risklab-APG Workshop on pension fund regulation and long-term investment

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This presentation by John O'Brien, Mercer, was made at the OECD-Risklab-APG Workshop on pension fund regulation and long-term investment held in Amsterdam on 7 April 2014. Discussions focused on: long-term pension investment strategies under risk-based regulation; riskiness and procyclicality in pension asset allocation; and, regulatory challenges for long-term illiquid assets.

For more information, please visit:
http://www.oecd.org/daf/fin/private-pensions/OECD-APG-workshop-pension-fund-regulation-LTI.htm

Published in: Government & Nonprofit
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Transcript of "Regulatory challenges for long term illiquid assets - John O'Brien - OECD-Risklab-APG Workshop on pension fund regulation and long-term investment"

  1. 1. REGULATORY CHALLENGES FOR LONG TERM ILLIQUID ASSETS OECD / APG / RISKLAB WORKSHOP 7 APRIL 2014 John O'Brien Partner Dublin - Charlotte House
  2. 2. MERCER 108 April 2014 Regulation and real assets Response to speaker • Pensions is a very fragmented market in Europe, c140,000 IORPs • Breaking of the traditional “barbell” approach (listed equities and government bonds) to investing needed to unlock capital for real assets such as infrastructure • Sponsor perspective – managing against multiple KPIs and stakeholders not trivial • Mercer’s 2014 asset allocation study shows a ‘sticky’ 3% allocation to infrastructure • Can spread earned on real assets justify the governance if portfolio weighting is not high? – IORP Directive emphasises importance of ‘fit and proper’ going forward – Regulatory uncertainty in itself eats into governance time – Diversified growth funds a ‘manageable governance’ response to diversification agenda – Fitting illiquid assets into a ‘journey plan’ is not trivial for small/medium investors, and journey plans are increasingly common among underfunded DB arrangements – Backlash evident in some cases against excessive number of manager relationships • Our work with pension and insurance clients suggests some key themes: – Sweating assets in a low yield environment – How ‘global’ is inflation? – Diversification often undervalued as a benefit with real assets where focus is on return
  3. 3. MERCER 208 April 2014 Regulation and real assets Response to speaker • Difficult to completely divorce regulation from mark to market accounting given the existence of the latter – structural arbitrage • Regulation can facilitate behaviours – e.g. the UK 2014 budget and its likely impact on the defined contribution market • Helpful measures for real asset investing potentially facilitated by regulation: – Providing confidence in real asset products, incl. fees and transparency – Evidence insurers would accept real assets (e.g. infrastructure debt) in specie in annuitisation transactions – Eligible collateral for derivatives – Fostering market for secondaries – Benchmarks and data to help support decision making – Recognise differences between pensions and insurance, esp. tail correlations when tail events don’t necessarily trigger “insolvency” – Nature of funding tests in some countries, e.g. ‘realisable value’ basis for the statutory funding test in Ireland – Facilitate capital pooling
  4. 4. Mercer (Ireland) Ltd., trading as Mercer, is regulated by the Central Bank of Ireland. Registered Office: Charlotte House, Charlemont Street, Dublin 2. Registered in Ireland No. 28158. Directors: Tom Geraghty, Tom Brennan and Vincent Sheridan.
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