11/04/2015 - 2 Solutions To Investing In Financial Repression By Vulpes’ Stephen Diggle
Vulpes Investment Management Founder Stephen Diggle goes through the math to explain the challenges for investing sufficient capital & generating enough yields for retirement .. how do you get yield in today’s environment of repressed interest rates & quantitative easing ., on concerns these investments are illiquid: “These sorts of solutions to the Yield Problem do have the major disadvantage of being illiquid and that is a real consideration. However, well run endowment and pension funds are supposed to have a clear idea of the ‘long term liability matching’ which they exist to do, so while a cash reserve of liquid assets would always be prudent, it’s hard to see how that safety amount would ever exceed 10-15% of assets. Liquidity is a nice thing to have, and usually better than illiquidity (although some make an argument that a long term commitment when enforced produces better returns); but when the price of liquidity is investment failure; as we would see the whole sovereign bond market, it is a crutch that must be foregone. In the real world no-one will have a pension fund comprising of one alternative asset, but the returns above are not fictional. We believe they are distinctly possible both for the pension disaster of traditional assets and the transformational impact of high yielding alternatives. We’d go further to say that it is almost inevitable that the coming crisis in retirement will lead pension funds of the near future into many more alternative assets, agriculture and real estate included.”
