Asset Allocation in a Low Interest Rate Environment: Where do we stand?

Early in December, in the context of the first edition of the “Invest Week” and in cooperation with Pensions Europe, ECMI staged an event on “Asset allocation in a low interest rate environment”. Moderator (and ECMI General Manager) Karel Lannoo explored with his fellow panellists the extent to which current conditions can potentially undermine the ability of insurance undertakings and pension funds to fulfil their long-term financial promises to policy holders and beneficiaries.

On the assets side, it was observed that the search for yield will remain the norm for years to come, together with an increasingly higher reinvestment risk. On the liabilities side, a notable trend is the acceleration of the move towards unit-linked insurance products and defined contribution pension plans, which shifts the risks from the providers to consumers. Insurance companies have reacted so far by narrowing the duration mismatch and investing in alternative assets (real estate, infrastructure, renewables and private equity). In addition, asset managers reduced their fees and are confronted with declining returns on their portfolios.