While virtually all risk assets delivered strong returns in 2009, the recent performance of corporate credit is without any modern precedent. Against a backdrop of an improving global economy, corporate deleveraging and strong investor flows, US dollar-denominated investment grade corporates outperformed similar maturity Treasury bonds by an astonishing 20% over the second and third quarters. At 265 basis points (bps) at the end of October, BBB spreads narrowed by about two-thirds from their peaks.

While many equity investors were overweight the healthcare sector at the start of 2009, the sector has significantly underperformed the market this year, not least because of the aggressive sector rotation out of defensives that began in March. However, the major driver for underperformance has been the uncertainty created by President Obama’s US healthcare reform plans. The sector is now at a 20% discount to the market, based on forward price/earnings ratios, and is currently the cheapest it has been for at least 30 years.

Emerging markets equities have rallied some 100% in sterling terms from last year’s lows. The quarter ending in September 2009 was the third best quarter for the asset class in eight years. Although valuations are no longer distressed, and discounts to developed markets narrowed, given the far superior economic growth in emerging economies there is still a lot of potential to generate significant returns.

Commercial property has historically been an asset class without an efficient tool for managing market risk – and arguably one with the greatest need. The illiquid nature of commercial property investments makes it hard to allocate capital when relying solely on trading underlying assets.

Sentiment moves markets. That certainly seems to have been the case so far this year. After the dreadful last quarter of 2008, most market participants believed they had seen the worst, only for equities to continue spiralling down until March. Similarly, by May, most assumed that the strong rebound rally had run its course, only to watch the S&P climb its way above 1,000 in August.

UK equities have had a strong run since their trough on March 9, thanks to improved investor confidence. The rally was initially led by bombed-out stocks, especially by banks that suffered heavily in the financial crisis and could require further capital injections down the road.

In 1820, today’s emerging economies accounted for more than 80% of global GDP. With the onset of the industrial revolution, these inventive and enterprising countries turned inward and ultimately lost their leadership position in the global economy. But in recent times, emerging markets have re-emerged to – from their perspective – regain their rightful place in the economic world. Today, they account for more than 50% of global GDP, up from 38% in 1950.

Since the summer of 2007, asset class returns have headed downwards. With the exception of government bonds, no asset class, including alternatives, has protected investors from the credit crisis. For pension funds, it may have seemed that the best place to be would be out of the market entirely.

The national bureau of Statistics of China recently released figures that show the country’s GDP growth in the final quarter of 2008 was 6.8% – down from 9% the previous quarter.

There is little doubt that the current economic and market downturn is the worst in decades. It is easy to think that we are moving in uncharted territory as the cliché goes. However, extreme events like these are not all that unusual when you look at very long historical patterns.

The prospects for the global economy are increasingly bleak. Recent figures suggest the downturn is now synchronised across the globe to a much larger extent than previous recessions. High levels of debt and low savings in key sectors suggest deleveraging has much further to run, while rising unemployment, weak investment and deteriorating consumer and commercial balance sheets look set to remain a feature for some time.

Sustainability just became more interesting. We’ve heard the word repeatedly from governments over the past few years. What it often refers to is maintaining the status quo or practices that will preserve economic and environmental health. Now it is being linked to ethics in a direct challenge to the pensions industry.

The world is entering a possibly lengthy recession and while no country will be immune from the downturn, Japan, having experienced the depths of a deflationary malaise in the 1990s, may well be better positioned to provide opportunities for pension fund investment over the long term, not-withstanding recent yen strength.