A 25-year-old bond that matures in the U.K. this summer neatly encapsulates the trend that has driven investors to chase higher returns by buying private assets, lower-rated debt and other riskier securities. Its expiration also illustrates that as older issues roll off in the debt market, pension funds will struggle to find assets that generate sufficient cash flows to fulfil their obligations to retirees. So the hunt for yield in less liquid pockets of the market is set to continue for the foreseeable future.
With the income available to pay retirees from fixed income investments shrinking, pension providers are in a bind. In Denmark, for example, a state-run fund has decided it needs to take more risks with the $150 billion it oversees to provide basic pensions for Danes. ATP got government permission last week to slash its 80% allocation to bonds in favor of buying real estate and infrastructure assets.