Pensions - Articles - Trustees need to be nimble before and after Brexit vote


Pension scheme investors need to be getting ready to move swiftly in the countdown to the EU referendum, according to investment consultants LCP.

 LCP says that regardless of the outcome of the vote, investors should be braced for a choppy ride in the run up to 23 June and potentially for some time afterwards. It is important that schemes maintain a diversified investment strategy and are prepared should risks increase or opportunities arise.

 “A clear vote to remain would likely rekindle the currently weakened UK economy in the short term,” says Ian Mills, Partner at LCP. “Sterling is likely to appreciate as investors unwind their defensive positions and international investors welcome the certainty provided by the result. However, a narrower victory for the Remain campaign may not provide the certainty that markets are looking for, bringing an increased risk of a further referendum later on, so dampening confidence as the debate drags on.”

 Given that it seems currently to be an outside chance, LCP believes a Leave result would shock markets, with riskier assets hit hardest as markets digest the news.

 “Sterling would likely fall further in value, credit spreads may well widen and companies that rely heavily on UK and EU revenues could suffer in equity markets, at least in the short term,” said Ian Mills. “But while a fall in Sterling might sound like bad news, pension schemes with significant unhedged overseas investments could actually see their asset values increase – at least in Sterling terms.”

 According to LCP, a key concern for investors would be the Bank of England’s response. The firms believes that interest rate rises would be delayed further in the event of Brexit, at least until the dust settles. For schemes that haven’t hedged liabilities this could mean further pain.

 Although the market is focussed on the risk of Brexit, other global risks may actually be more significant, such as the debt build-up in China and the potential for disruption from the US president election.

 “The only thing we can say with certainty is that 2016 will continue to be a bumpy one for investors,” said Ian Mills. “Clearly schemes cannot second-guess the outcomes of all these events – and others currently unknown – but they can ensure they remain diversified and ready to take action. We recommend trustees stay very close to their advisers over the coming weeks and months.” 

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