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LMM Compass EDITION 3 / 2nd QUARTER 2017

The investment environment still poses great challenges for investors. Especially pension funds suffer from the current low interest rate environment. This raises the question, whether a longer investment horizon enables to generate additional sources of return. Very interesting aspects thereto arose from our discussion with Dr. Wolfgang Huber. As a member of the Management Board and responsible for the asset management of one of the biggest pension funds in Austria, he refers to the current situation on the financial markets.

Jürg Meier Jürg Meier

Partner, CEO

Markus Häni Markus Häni

Member of the Management Board

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MARKETS AND STRATEGIES

In the 1st quarter 2017, stock markets showed respectable price gains. Yields on the world’s bond markets remained stable. Segments such as emerging markets and high yield bonds recorded profits. Alternative asset classes such as real estate, gold and private equity also showed a significant plus. On the currency side, the US-Dollar has lost in value. A consolidation has taken place in commodities.

The 1st quarter 2017 closed predominantly on a positive note. Investment strategies with a high equity exposure were convincing and are already showing returns of more than 3% (before costs). Investment strategies with high bond exposure lost in January and March.

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CHALLENGES IN CURRENT MARKETS

LMM, as independent controller, supports the BONUS Group in the area of cost analysis and -control. In an interview with Mag. Stefan Kargl (Head of the Vienna branch of LMM), Dr. Wolfgang Huber (Member of the Management Board of BONUS Pensionskasse und
Vorsorgekasse), explains the challenges in the current environment.

The current low interest rate environment is a challenge for all investors. What impact will this have on the management of pension fund assets?
The entire pension market could benefit in recent years from the trend of falling interest rates in the form of price gains with bonds. However it is clear, that this is a considerable burden for the future. Considerable risks have to be taken in the current environment, in order to have at least the chance to achieve a positive investment result – after all, the risk-free interest rate is below zero. The high returns from the past however, cannot be expected as such in the future and actuarial interest rates of sometimes more than 5 or 6 percent, cannot be achieved from today’s perspective in the long-term without an
acceptable risk. This is what we try to convey to our customers. Our objective is to generate risk premiums offered by the market irrespective of the low interest rate environment through an active management in the allocation and selection process. This is for us the key for the longterm investment success.

Do pension funds have to increase the risk, in order to avoid reducing pension payments?
The risk level that must be assumed to earn at least the actuarial interest rates is certainly higher now than it was in the past. On the other hand, the quality of the risk management, which means how risks are dealt with, has increased in our industry in recent years.
The risk thus became more calculable.

What is the added value that Investment Controlling should offer from your point of view?
Of course, that depends on what areas are covered by the Investment Controlling. In any case, it should contribute to an increased operational efficiency. In addition, I would expect that it broadens the perspective from the outside and therefore more attention is being paid to aspects that otherwise threaten to be lost in daily business.

What return can the insured expect in the coming years?
The expected return for the coming years is realistically, depending on the investment structure, at about 1–3% per annum. That may sound low, but compared with other forms of investment you can consider a pension fund investment – as we have seen in the past – as highly attractive.

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VIENNA BRANCH: WELL ON THE WAY

The Vienna office of LMM Investment Controlling Ltd. opened its doors in July 2014. This branch office is headed by Mag. Stefan Kargl. With his team he counts private foundations, pension funds, church institutions and wealthy private persons among his clients.

A large share of assets from Austrian foundations (around 70 Bln) is invested in company holdings and real estate. Next to the monitoring of financial assets these clients also value the consolidated reporting, which not only includes securities but also property and private equity. This supports the board with the management of total assets. For agents who carry the responsibility for the management of assets belonging to third parties, the
liability risk is a crucial point. A skilful and independent investment controlling is an important part of a professional investment organisation and helps as an early warning system in order to avoid liability risks.

“The market potential for an independent investment controlling in Austria is high, though the market is not developed yet. The positive feedbacks from our clients pleases and motivates us”, according to Stefan Kargl.

WELCOME TO LMM

Since January 2017 Cornelia Bargetze and Martin Frick support our team. Cornelia works in the accounting/back office and Martin is in charge of institutional clients as investment controller.

Martin Frick
Martin Frick

Education
Bachelor of Business Administration, CIIA, FRM
Career
LGT: Valuation Officer Compliance
DJD Partners Trust reg.: Fund Manager
NEUE Bank AG: Trader
LGT: Back Office Sec. Administration
Hobbys
Skiing, Cross-Country Skiing, Hiking, Cooking

Cornelia Bargetze
Cornelia Bargetze

Education
Matura Examination, Apprenticeship
Career
NEUE Bank AG:
Apprenticeship & Back Office
Sec. Administration
Hobbys
Hatha Yoga, Hiking, Cooking

Icon LMM Investment Controlling Ltd.

LMM Investment Controlling Ltd. is an independent provider of Investment Controlling services and represents the interests of private and institutional clients towards banks and asset managers. Apart from the head office in Vaduz, LMM has branches in Zurich, Dubai and Vienna..

Disclaimer: LMM takes the utmost care in compiling the information. We don’t grant any warranty, including liability towards third parties, with respect to the accuracy, relevance and completeness of the information and opinions published in this newsletter.