Low interest rates, poor stock market returns and ongoing volatility are making it increasingly challenging to find investment solutions that will help plan members reach their retirement goals. So what can plan sponsors do?
Rahul Khasgiwale, investment director for multi assets at Aviva Investors, said the answer may lie in alternative asset classes that play a significant role in managing volatility and providing meaningful returns for defined benefit pension plans. “We have started to see some of those alternative asset classes make their way into the DC landscape in Canada,” he said.
One of the innovations becoming available is target or absolute return approaches, said Khasgiwale, who spoke along with Pat Leo, director of institutional business development at Sun Life Global Investments Inc.
Unlike traditional approaches, target return investing doesn’t follow a specific benchmark and the funds “don’t have to invest in any particular underlying investment strategies or asset classes,” said Khasgiwale. “They have the discretion to invest across many different types of asset classes that could include equity, credit, duration, inflation, volatility, currencies, real estate and alternative strategies, such as relative value or long-short.”
Moreover, these funds can employ alternative strategies. “They can invest in long-short asset classes and short asset classes, which can provide positive returns as traditional markets are declining,” said Khasgiwale.
At a time of “extremely high correlation” between equities and fixed income, alternative assets can provide diversification, help lower portfolio volatility and target positive returns through all market conditions, he added.
Read more articles from the 2016 DC Investment Forum