Institutional investors are dealing with Brexit in number of ways but there is one underlying view they all share: the markets are very risky, thus there are opportunities, but long-term consequences are impossible to predict.
The Slovenian pension fund Sklad obrtnikov in podjetnikov (SOP) will increase their activity over the next couple of months, Luka Konte, the fund manager at the €200 million SOP, told Modern Investor.
‘Our strategy for next 3 months is to be very active, which means day trading in equities. We are expecting a short term rally where we will cut our exposure of risky assets. We will also buy some USD to hedge.’
He added that investors needed to look at what would happen with bank stocks because they were the catalyst of the market movements.
‘Risky assets will recover in the short term – but the risk-to-equity price is on the downside.’
Konte also said that he saw stronger US dollar until the end of the year which would cause problems for emerging markets.
Large asset owners stay put
The CIO of the California Public Employees' Retirement System (CalPERS), Ted Eliopoulos, said that the fund didn't overreact to short-term volatility.
‘The crucial thing is not to panic. We’ve seen this type of volatility over the decades at CalPERS… so we don’t fear the panic these types of volatile markets produce but we actually trade into them and look for opportunities.’
The CIO of the $294 billion (€266 billion) pension fund added that it was unclear what impact the long-term ramifications of political decisions that will have to be made in Europe will have on the financial markets in the long term.
Another major global asset owner, NBIM, which is the fund manager of the €808 billion Norwegian sovereign wealth fund, said in an e-mail to Modern Investor that they followed the situation, but had no further comments at the moment. However, it stressed what it had said prior to EU referendum that it would remain a long-term investor in the UK regardless of the outcome.
More uncertainty ahead
The consultancy Hyman Robertson said it expected continued volatility over the coming days as investors decided what the result would mean for the outlook for different investments. ‘The threat of another Scottish referendum will also add to uncertainty and volatility, and there is the potential for a wider domino effect if similar EU Referendum votes are held in countries across Europe, which would place pressure on the make-up of the Euro,’ Andy Green, CIO at Hymans Robertson, said.
However, another consultancy thinks Brexit might not even happen, despite the outcome of the referendum. Cambridge Associates, a consultant for institutional investors, said immediately after the vote that if popular opinion turned during the UK-EU trade negotiations, the possibility of a second referendum should not be precluded, similarly to what happened in Ireland in 2008.