For more information contact: emailus@marcusevans.com Adair Turner, a speaker at the marcus evans European Pensions & Investments Summit 2014, shares his outlook on the economy and what implications it may have on investors. Join the 2015 Summit along with leading regional pension investors and global asset managers in an intimate environment for a focused discussion of key new drivers shaping institutional investment strategies today. For more information contact: emailus@marcusevans.com

1. What Pension Fund Investors
Could Learn from Adair Turner
economy private sector leverage, with
private credit growing relentlessly faster
than nominal GDP; (ii) an explosion of
complexity within the financial system
which, far from making the system
safer, increased the danger of selfreinforcing reflexive reactions between
different credit and derivatives markets
which resulted in first excessive
exuberance and then a collapse.
Interview with: Adair Turner,
Former
Chairman,
Financial
Services Authority (FSA)
A drop in interest rates in the past 15
years has induced a “ferocious „search
for yield uplift‟”, making some pension
fund investors “susceptible to claims
that clever financial structuring could
deliver additional yield without apparent
additional risk,” according to Adair
Turner, Former Chairman, Financial
Services Authority (FSA). “With extra
returns almost always comes greater
risk. Returns have to be earned by
taking controlled and carefully managed
risk,” he says.
Lord Turner is a speaker at the marcus
evans Europ ean
P en sions
&
Investments Summit 2014, in
Montreux, Switzerland, 28 - 30 April.
What drove the financial crisis of
2008 and what factors are critical
for a stable and growing economy?
Ahead of the 2008 crash, many central
bankers and regulators believed that the
global economy and financial system
had become more stable, that a “Great
Moderation” reigned. The orthodox
assumption was that achieving low and
stable inflation was sufficient to ensure
macro-economic stability; and that
financial innovation, securitisation,
structuring and derivatives had
increased the resilience of the financial
system.
But it all ended in disaster. The
fundamental drivers of that disaster
were: (i) a sustained rise in real
To ensure a more stable economy,
central banks need to be focused not
just on low and stable rate of inflation,
but on the control of the credit cycle.
What lessons did pension investors
learn from the crisis? Were they
guilty of “pre-crisis delusions”?
There is no free lunch. With extra
returns almost always comes greater
risk. Nominal and real interest rates fell
relentlessly in the 15 years running up
to the crisis. In 1990, a pension fund
could buy a 20-year GBP or USD indexlinked bond giving a guaranteed real
return of over three per cent; by 2007
the equivalent was 1.5 per cent. Not
surprisingly, this induced a ferocious
“search for yield uplift”. That made
some pension fund investors susceptible
to c laim s that c lev er f inanc ial
structuring could deliver additional yield
without apparent additional risk.
And that helped drive the uncontrolled
growth of real economy credit packaged
into apparently low risk securities,
particularly in the US.
Global
economic
activity
strengthened in the second half of
2013. What is your growth
forecast? What vulnerabilities still
need to be managed better?
The US economy is now recovering
reasonably well – but with a very low
rate of employment. The UK is also
recovering, but in a very unbalanced
fashion, too reliant on house price
increases and on London‟s extraordinary
success. The Eurozone faces the real
danger of deflation, and the ECB will
need to take offsetting measures. 2014
is the crunch year for Abe-economics:
the April sales tax increase may produce
a significant slowdown; expect to see
still more radical stimulative action from
the Bank of Japan.
But the most important economy to
watch is China. Since 2008, growth has
been sustained by extraordinary credit
growth. The authorities know they need
to slow the boom down, but achieving a
soft landing is very difficult. If they do
not manage the transition well, China
could be the origin of the next financial
crisis.
The most
important
economy to
watch is China
What implications does that carry
for pension funds and other asset
managers in Europe?
We are in a period of very low nominal
and real interest rates on risk-free or
very low risk bonds. In the Eurozone
and Japan that will remain so for many
years; even in the US and UK rates may
stay lower for longer than some market
participants now think.
Returns therefore have to be earned by
taking controlled and carefully assessed
risk. Long-term infrastructure financing
should provide opportunities for superior
yield based on operating cash flows
rather than “innovative” structuring.
Higher yield dividend stocks may
provide good long-term value. Focus on
sustainable real economy investments:
beware the complex highly leveraged
structures whic h are bound to
proliferate the longer ultra-low interest
rates last.

2. About the European Pensions & Investments Summit 2014
The
Investment
Network
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marcus evans Summits group
This unique forum will take place at the Fairmont Le Montreux Palace, Montreux,
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Switzerland, 28 - 30 April 2014. Offering much more than any conference,
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trends
industry thought leaders and solution providers to a highly focused and interactive
and
breakthrough
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networking event. The Summit includes presentations on increasing fund resilience,
establishing a robust risk framework, capturing investment opportunities and
assessing the true value of emerging market investments.
www.epi-summit.com
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business
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strictly
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To view the web version of this interview, please click here: www.epi-summit.com/AdairTurner