Investment firms and pension funds are to expect a roller coaster journeyon their returns following a first taste of the seismic effect of the COVID-19 pandemic, delegates were told at the IPE Summer Pensions Congress 2020, an online event held this week.“It is a little bit like dancing on a volcano”, said Christian Mosel, chief executive officer of Ärzteversorgung Westfalen-Lippe (ÄVWL), the pension fund for doctors in Germany’s Westphalia-Lippe region, pointing to the mismatch between equity markets and the real economy.ÄVWL continues to watch the market “very closely” to act “very quickly,” he said, adding that the swings in markets are “tremendous” and sometimes “we place bigger bets.”Clive Gillmore, CEO and group chief investment officer of Mondrian Investments Partners, noted the essential shifts in human behaviour as a sign of potential recovery. Christian Mosel (ÄVWL), Clive Gillmore (Mondrian), Alfredo Granata (Inarcassa) joined by Richard Lowe, editor of IPE Real Assets, during an IPE Summer Pensions Congress panel discussion.He added that the fund does not hold government bonds, excluding Italy, and has reduced corporate fixed income while increasing its commitment to private markets. “We did not expect recovery in the equity market,” Granata admited.For Gillmore, the important difference is between growth and value equities, with a few stocks dominating the market, he said, pointing the finger at tech giants. “Japan equities look interesting,” he added.In the next sixth months, Gillmore said that, based on mark-to-market, infrastructure investing could be a healthy option, but added that gold could also be an alternative in terms of positive returns.For Mosel, alternatives could suffer a set-back in the near future, while emerging market (EM) equities, in particular in Asia, may perform well.The COVID-19 pandemic brought unemployment, changes in people’s behaviour, an impact on business revenues, dividend and growth: “It is not an attractive picture for equity returns,” Gillmore said.“We think that there are opportunities in the value space, the question is which company survives and that is a key question for value investors,” he said.Emerging marketsGillmore explained that EM investments have suffered dramatic change in the last two and half decades, with Asia, and in particular China, taking centre stage.“Very few people would construct a portfolio for emerging markets and put 80% of the portfolio in one market, but they might consider going down to 30-40%,” he said.“The way to build an EM portfolio is to generally try to move away from the benchmark, look for a long-term real return basis, and pick securities based on their individual merits rather than their size,” Gillmore said.Mosel, who lived in Hong Kong, concurred: “I agree on the Chinese dominance in the stock market,” he said, adding that ÄVWL maintains diversification of its EM asset managers but it is not reluctant “to go in for a large Chinese proportion”.Inarcassa is aware of the central role played by China, and believes that real estate, infrastructure and private equitie are good opportunities in China and the Pacific region, Granata said.To read the digital edition of IPE’s latest magazine click here. “The reality is that there is a clear sign that human behaviour seems to have changed, and unless there is a swing back in that form of behaviour, there will not be any form of serious economic recovery,” Gillmore said.For Alfredo Granata, CIO of Inarcassa, the first pillar pension fund for self-employed engineers and architects in Italy, “lower returns and higher risks” are in sight, he said, adding that double digit returns achieved in the past year are “out of mind” for the next two or three years.Asked if scheme will be concentrating on domestic markets, Granata said that it would always depend on returns but “private equity and private debt are opportunities to explore in Italy.”Recently, during the COVID-19 crisis, ÄVWL reduced its equity exposure to approximately 5%, keeping alternative and real estate investments nearly unchanged at 25%.“We still believe in diversification,” Mosel said, adding that alternatives and real estate “will pay off at the end of the day”.Inarcassa had already started 2020 with a lowered exposure to equities. “We were lucky, we were almost 10 points lower in the equity share of portfolio versus a targeted share of between 25-20%,” said Granata.