Goldman Sachs: Pension funds eye private credit in 2024
Private credit is among the asset classes that pension fund managers expect to generate the highest risk-adjusted returns in the next year, according to Goldman Sachs Asset Management research.
A survey of 126 senior defined benefit (DB) pension fund managers and executives based in Europe found that 68 per cent believe the asset class has the potential for increased returns without a corresponding increase in volatility.
And 65 per cent of respondents plan to allocate to this asset class over the next three to five years.
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Additionally, pension fund managers are placing a greater focus on liquidity management and risk reduction, the research found.
It attributed this to an improvement in funding ratios, which measure the amount of liabilities that available assets cover in DB pension plans.
The aggregate funding ratio is currently standing at 120 per cent for Europe and a record high of 134 per cent for the UK.
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The survey found that the best-funded schemes are allocating significantly more to cash and less to developed market equities, particularly in the UK.
Sustainability was found to be highly important to European pension fund managers, with 87 per cent of respondents citing it as a critical or important factor in their decision-making process.
63 per cent allocate more than 10 per cent of their portfolio to sustainable investments.
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Most respondents (84 per cent) believe integrating ESG criteria into investment decisions can help reduce long-term risks, and more than half say this approach can generate alpha.
The survey results also revealed some optimism about the year ahead, with 59 per cent saying that the investment climate has improved.
“Our survey captures the views of European defined benefit pension fund managers at a pivotal moment,” said Fadi Abuali, chief executive of Goldman Sachs Asset Management International.
“Many are optimistic about the investment climate, yet the economic outlook is uncertain, with higher-for-longer rates, divergent growth paths around the world and elevated geopolitical risk.
“Given sharp increases in yields and cooling inflation, managers are leaning into investment grade debt and private credit.
“We expect to see a continued increase in fixed income allocations across public and private markets, as pension funds trim their exposure to more volatile assets such as equities in favour of more stable income-generating investments.”