Pensions Uninterested in Indian Debt

India gate

Some of the world’s most prominent pension funds have been eyeing Indian infrastructure investments.

But pensions remain uninterested in the country’s debt. More from the Economic Times:

Despite record inflows in 2014, Indian debt was unable to draw attention of perhaps the stickiest investors in global arena -sovereign wealth funds (SWFs) and global pension funds. These two prominent categories constituted only 1.73% of foreign institutional investors (FIIs) assets under custody (AUC) in Indian debt in 2014 while their pie in equities was 17%.

“SWFs and pension funds participation has been tepid in debt securities compared with equities on account of two reasons. One, tight limits on government debts dissuade them from Indian debt instrument as it artificially creates demand and poses liquidity risks. Second, SWFs desire to see stability across macro variables ranging from currency to the current account deficit and accordingly , they invest for longer term. We have some semblance regarding stability, so we can see inflows to increase if things persist according to what we have seen last six months,” said head of treasury at an MNC bank on condition of anonymity .


Experts, however, believe that the phenomenon may reverse in the current year. In the last six months, the rupee has been least affected by the emerging market currency crisis. In case volatility in the rupee remains low for another couple of quarters, the outlook on Indian debt by SWFs will improve. In addition, sound decision making of the central bank, unlike the policies of central banks of Russia and Turkey, will boost confidence of these long-term investors. The central bank of the latter two countries had flip-flopped on the policy front.

The Canada Pension Plan Investment Board (CPPIB) has been active in India and considers the country a “key part” of its long term plans.

What Types of People Should Manage Institutional Money?

institutional investors

What traits does it take to be a successful manager of institutional money? A high IQ? A steady temperament? A penchant for going on lucky streaks?

Jack Gray, of the Paul Woolley Centre for Capital Market Dysfunctionality at University of Technology, Sydney, dives deep into this question in a recent article published in the Rotman International Journal of Pension Management.

From the article:

Successful investors are likely to be overweight on several the following traits:

• A paradoxical blend of arrogance, to discover and arbitrage opportunities ahead of the market, and humility, to simultaneously be skeptical about those discoveries.

• A commitment to the principle “know thyself” – for instance, recognizing when previously justified contrarianism has degenerated into unjustified stubbornness.

• The ability to make effective decisions under uncertainty, ambiguity, and pressure. A temperament that seeks comfort and stability will likely be ill-suited to investing.

• The confidence to encourage and absorb dissent yet to know when to act. Almost all organized human endeavors have at their core a paradigm of broadly agreed beliefs, stylized facts, and patterns of thought that impose a uniformity of views.

Ideas that challenge the paradigm tend to be ignored, not absorbed: Markowitz’s thesis was not rated as genuine economics, while Akerlof’s ground-breaking paper on the pricing impact of information asymmetry (Akerlof 1970) was twice rejected. Both eventually won Nobel prizes.

• The wisdom to know when to cooperate, a rare trait in a culture that has elevated competition to quasi-religious status. Much (though not all) investment information is “non-rival,” so that its value increases through sharing, as evident in open-source ventures. Yet by temperament, training, and incentives, many have an antipathy to sharing. In a study that engaged students in a game in which participants do better by cooperating, 60% of general students cooperated while only 40% of economics students did (Frank et al. 1999).

• The self-control to value patience, and so resist the short-term imperative and its eternal concomitant, being busy.

• A willingness to question and be curious, traits lacking in many boards that oversee other people’s money. After spending time embedded in American pension funds, the anthropologists O’Barr and Conley (1992) reported “a surprising lack of interest in questioning and surprisingly little interest in considering alternatives.”

Gray goes on to write that we can put people into two categories: hedgehogs and foxes. And while the investment world has plenty of the former, it is short on the latter. From the article:

Isaiah Berlin (1953) bequeathed us a crude but useful typology of people: hedgehogs view the world through the lens of a single defining, and usually substantial, idea; foxes view it through multiple lenses. Both types are needed in investing, but we are over-populated with hedgehogs who better fit compartmentalized corporate structures and are more fecund. We need more foxes, people with broader perspectives willing to trespass—a notion coined by Albert Hirschman (1981)—into foreign fields.


Cultural change is needed to recognize, support, and reward foxes, who tend to be spurned by tribal hedgehogs as soft-headed dilettantes. To Charlie Munger (1994), having different mental models is the most important thing in investing, because they expose new opportunities and drive a dialectic of risk. Investment organizations should seek more people with “contrary imaginations,” as the psychologist Liam Hudson (1967) phrases it: people with exceptional intelligence in alternative but meaningful ways; people with intelligence about the humanities, especially history and psychology, the disciplines that underlie and drive markets; people with emotional intelligence to direct and manage others; and people with organizational intelligence to get things done.

Gray provides much more analysis in the full article, which can be read here.


Photo by Nick Wheeler via Flickr CC License