Pension schemes being coerced into continued investment in fixed income are missing a golden opportunity to improve funding levels, according to Gatemore Capital Management.
The firm said that governments had unwittingly created a sovereign bond asset bubble, with regulations such as Basel III and Solvency II having encouraged pension schemes and other institutions to purchase bonds, while central banks had done the same via quantitative easing and other monetary policy.
"With real yields firmly in negative territory, bond investors are either betting that Western economies will head down the same path as Japan did twenty years ago or they are paying an outrageous premium to 'match' their liabilities," said Gatemore managing partner Liad Meidar.
"If we are in a bubble, when will it burst?" he asked. "Timing is always uncertain, but it is clear that the mark-to-market repercussions will be immense - and many or even most pension schemes may miss the single biggest opportunity in recent history to dramatically improve their funding levels."