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.