GPI 2021: Asset allocation

Lower for longer accelerates diversification drive.

THE COVID-19 PANDEMIC has shaken public investor behaviour. In the words of one central bank respondent to OMFIF’s 2021 Global Public Investor survey: ‘Reserves management has become more challenging as the low-yield environment incentivises taking into consideration riskier asset classes, resulting in a deterioration in the credit quality of the portfolio.’ The pandemic has perpetuated the difficult ‘lower-for-longer’ environment, as major central banks have extended monetary accommodation measures or put in place new ones. Concerns around debt overhangs and the continued environment of low returns on traditional central bank assets have added to existing pressure on GPIs to diversify. They have also caused a growing share of central banks to give up their pursuit of even bare minimum yields. Of the central bank respondents, 40% suggested that the low-yield environment is driving continued diversification. Among public pension fund respondents, the proportion was close to 60%. Yet an equal share of central banks also said they were simply accepting a lower return, up from 28% last year, suggesting that many have been beaten into submission

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