There has been little to no payoff from diversification over the last seven years within portfolios from the big pension funds around the globe.
That’s what several managers of the funds told CIO Alex Ortiz during recent conversations Afina had with them about diversification and other investment factors.
The time will come that piling on “momentum” stocks/regions will not produce the kind of alpha that we’ve seen lately, and true diversification will be needed. An allocation to the LatAm region, which has underperformed versus the ROW in the last five years, should be considered.
Three other takeaways from those discussions with fund managers?
- Too many of us across industry are still captive to 20th century models for 21st century problems.
- There is no substitute for local knowledge when assessing an international opportunity – make sure the team has actually been to the market they’re investing in.
- The most populous city in the world in 2100 with a population of 88 million people will be Lagos, Nigeria, followed by Kinshasa, Congo (83 million) and Dar es Saleem, Tanzania (78 million), according to the Global Cities Institute’s projections. These populations trends will impact how managers consider their international allocations.