Asset owner June insights: asset allocation at time of regulatory change

From pension reform in the UK to the EU’s regulatory push, over the past weeks, European pension funds have had to contend with non-market factors influencing asset allocation decisions. Meanwhile, the geopolitical outlook remains highly unstable, and this is mirrored in an uncertain scenario for the global economy and markets. But pension funds have not sat idly; instead, they have made important asset allocation shifts to secure their portfolios for the months ahead.

Are governments gaining power over pension funds’ investment behaviour?

In the UK, the Pension Schemes Bill became law after lengthy and often bitter discussions within the country’s Parliament, and it is expected to reshape the £2trn (€2.3trn) UK pensions sector by driving larger, more efficient schemes, increasing investment in UK infrastructure and improving outcomes for savers. One of the key and most controversial provisions of the bill would have allowed the government to mandate minimum asset allocation targets for DC default funds. The provision was significantly diluted, but the debate shows how policymakers are serious about channelling private pension savings into ‘productive’ investments.

Read more  

• Pensions UK calls for clearer pathways to channel pension capital into UK growth 
• UK DC consolidation drive gathers pace as L&G default fund reaches £25bn 
• UK DC providers move beyond illiquid debate towards implementation, says Isio 

Shareholder rights under attack

It is no secret that the ability of asset owners to challenge company boards and management is being restrained. Last month, the European Commission closed a consultation on the future of the Shareholder Rights Directive (SDR) and investors are split about the way forward for SDR II. Meanwhile, at Exxon, one in five shareholders disagreed with management on key issues such as retail voting and the company’s plan to reincorporate in Texas. At Meta, a shareholder proposal to recapitalise so that each share has one vote failed despite wide support, on account of the company’s voting arrangements. A shareholder revolt at BP that ended with the removal of chairman Albert Manifold points to wider governance failings at the oil major, and investors in Shell face a similar fate as they called on the company to explain how it proposes to create shareholder value if demand for oil and gas falls sharply.  

EU plans to regulate, or deregulate, or both 

The European Parliament published a draft report on the overhaul of the Sustainable Finance Disclosure Regulation (SFDR), which suggests that it supports the European Commission’s plan to turn SFDR into a labelling regime. Meanwhile, the Commission has launched a consultation on its planned new sustainable reporting standards, which outline how companies must disclose environmental, social and governance information to their investors via the Corporate Sustainability Reporting Directive (CSRD). The Commission has resisted pressure to align the standards with the widely accepted International Sustainability Standards Board (ISSB) and remains committed to a “regulatory deep cleaning” in order to reduce the reporting burden for European businesses. 

At the same time, the Commission published a summary of what stakeholders had asked EU lawmakers to do about climate resilience. This came shortly after a stark warning from the UK’s Climate Change Committee (CCC) about the financial system’s exposure to physical climate risks, released as Europe suffered the dire consequences of heatwaves.

The debate on defence investment continues

Industry group European Sustainable Investment Forum (Eurosif) has published a discussion paper aiming to provide “a comprehensive overview of the interaction between sustainable investment and the defence sector”. The paper sets out to establish the current market and regulatory dynamics between private finance and the defence sector, while outlining the different viewpoints around sustainable investing in the defence industry. Aleksandra Palinska, executive director of Eurosif, said: “Debates around sustainable investment and defence often seek simple answers to highly complex questions.”

Big asset allocation shifts as concentration in US markets causes concerns

European pension funds continue to question their allocations to US assets, as the US dollar remains under pressure and concentration in US stock markets shows no signs of abating.

• Italy’s €18bn pension fund for engineers and architects, Inarcassa, pulled around €500m from US and technology equities as part of a strategic realignment of its global equity portfolio. The move was to reduce concentration in US and tech-heavy strategies.
• In the Netherlands, PFZW reported a -3.8% return for 2025, blaming the weak US dollar, as well as a sharp rise in long-dated swap rates.
• Nicolai Tangen, the CEO of Norges Bank Investment Management (NBIM), the manager of Norway’s €1.9trn sovereign wealth fund, told lawmakers in Oslo that the AI-fuelled stock market boom has caused unprecedented concentration in the fund’s portfolio.  
• Swiss pension funds are increasing global diversification and easing their home bias in order to reduce concentration risk. This is a significant shift, given the sustained outperformance of the Swiss stock market and its defensive characteristics. 
• In a contrarian move, Pensioenfonds Vervoer, the €37bn Dutch transport sector pension fund, has increased its allocation to US equities. The pension fund seems to be moving ahead of its time, having reverted its decision in 2024 to reduce its exposure to US assets in relation to its benchmark. Last year, Vervoer’s actively managed equity portfolio underperformed the benchmark by 1.4 percentage points, due to an underweight position versus the Magnificent Seven stocks. 

Pension funds seeking justice

The German dentists’ pension fund saga continues. Versorgungswerk der Zahnärztekammer Berlin (VZB) has filed a lawsuit against 12 parties, including Forvis Mazars, Deutsche Apotheker- und Ärztebank (ApoBank) and the state of Berlin, seeking damages for losses incurred on private market investments. The pension fund is alleging various breaches of duty by the parties, which, according to VZB, have led to losses of more than half of its €2.2bn in assets.

In the UK, Hermes Infrastructure has rejected allegations that it improperly exposed pension investors to excessive risk through a £104m (€120m) investment in Swedish wind farms, arguing in a newly filed High Court defence that losses resulted from unprecedented and unforeseeable market conditions rather than investment mismanagement. 

What we are watching out for

• Research from Northern Trust has revealed that pension funds are increasingly treating liquidity as a strategic portfolio allocation in its own right and not just as a buffer, as private markets exposure continues to increase across the institutional investment sector. 
• Asset managers increasingly expect artificial intelligence (AI) to commoditise standard sell-side research, according to research and market data provider Substantive Research. The firm said 70% of large asset managers expect “maintenance” research coverage to become AI-generated over time, while research spending is increasingly focused on access to senior analysts and differentiated insights.