Dramatic shifts to equiti
While Europe may never get to a uniform set of asset allocation figures, IPE has a go.
Hugh Wheelan reports
Asset allocation figures for Europe’s pension funds do not exist other than on an individual country basis, and even then complete market figures are by no means always available.
Another difficulty inherent in looking at funds’ allocation figures is the length of time it takes for the figures to become available – but there are very definite signs that matters are improving on that score.
At IPE we tracked down the latest available figures for a range of countries. These show on a market-by-market basis for 1998 the very significant portions of portfolios that equities now constitute.
Leaving aside the obvious candidates such as Ireland and the UK, the figures show equities reaching the 50% mark for Belgium and the Netherlands. Even the Swiss, judging by Intersec’s sample of balanced funds, are moving smartly up the equities league.
For Germany, the numbers relate to the official figures for Pensionskassen, by no means the whole of the German assets dedicated to pensions, and are at book values. Investment funds are thought to contain a substantial equity content but will not be exclusively so.
The French second pillar pensions system is highly liquid resulting in the short time lapse between contributions received from workers and their transmission into the hands of pensioners.
But an indication of how far the equity bug is gripping Europe comes when the above statistics are compared with the figures prepared by investment consultants William Mercer in its pioneering study of Europe’s pensions assets, ‘European Pension Fund Managers’ Guide’.
For its 1999 study last year, the equity portion in Dutch pension funds was reckoned to be 37%, compared with the 46% official reckoning.
Similarly, the Watson Wyatt figure for equities in Portuguese balanced funds came out at around 30%, while Mercer’s overall reckoning was nearer 25%. In the case of Finland, the association estimate is almost 18% compared to 13%.
Similarly, in Switzerland, the Intersec figures for balanced accounts show an equity quota of 38%, while Mercer’s market estimate was 25%.
There is no doubt that like is not being compared with like. A different result would arise from using a wider population of pension funds than the smaller, more defined cohort, as are the figures we are using. But nonetheless, we would suspect that the shift to equities in Europe is dramatic among funds.
Even in relation to the UK, the Mercer estimate is that equities stood at 72%, while the CAPS sample puts it at 69%, again conformation that in the UK the trend is downwards, leading to the thought that by the time the UK slips to a 50% equity content, the continental funds will have worked their way up to 50% equity portfolios.
Is there any possibility of talking about a European asset allocation as far as pension schemes are concerned?
As an exercise, IPE calculated the figures from the returns obtained on a weighted average basis: ‘European’ pension funds equity holdings: 53.3%; fixed income 35.7%; real estate 4.5% and cash/others 6.5%.