Commodities have attracted far less attention historically from pension funds than other alternatives, reflecting the challenges of investing in a diverse and volatile asset class.
Jonathan Berland, managing director at Gresham, says a concern for pension funds is the perception that commodities are risky, when in fact those risks can be controlled by responsible management.
Since commodities are a relatively new asset class for many pension funds, Mr Berland says there can be a tendency to concentrate on short-term performance or to chase returns. But high levels of volatility in commodity markets can act as an impediment to pension funds taking prudent long-term decisions.
He notes that pension funds have made substantial allocations to other asset classes, such as emerging market equities, where volatility has been significantly higher than in commodities. “Pension funds need to look ahead and think about the benefits that commodities as a broad asset class will generate over the next 25 years,” says Mr Berland.
