Pension fund investment lends itself to the exotic. As we become comfortable with one asset category, the market responds by promoting new investment opportunities.

In all of this, cash seems likely to experience a period of sustained growth. With stockmarkets around Europe at, or near, all-time highs, it is perhaps inevitable that investment strategies are becoming more defensive. One would expect this to be, in the context of the investment time horizons for the pensions funds, short-lived; but as funds mature, cash exposures might be expected to in-crease in any event. However, potentially more significant is the move towards defined contribution (DC). In many of these, individual members will determine their own investment strategy; it seems inevitable that they will be more cautious. Typical defin-ed benefit schemes are being continually refreshed with young members, so the investment time horizon stays at 30-40 years; in contrast, as an individual approaches retirement, time horizons need to shorten to secure a given level of pension payment. This process will be exacerbated if, as in many countries, the member is allow-ed, if not actively encouraged through the tax regime, to take a lump sum payment on retirement. If this is the case, it is prudent to build up a specific cash exposure during the last few years of employment.

Overall cash allocations will rise merely through the increase in total pension provision as countries seek to address the problem of unfunded pension liabilities. And if cash exposures increase, should we expect cash funds to receive a disproportionate volume of this growth? The most obvious reason for this is that the greatest growth amongst pensions in Europe over the next 10 years or so is likely to be in the establishment of DC pension schemes, which will tend to use pooled vehicles; or in allowing individuals outside of corporate ar-rangements to make provision for their own retirement - again, largely via pooled vehicles. But other factors will also influence the pattern of investment:

q Better performance The UK is in the midst of a profound debate about the use of specialist investment managers. Disappointing results from the leading balanced managers have re-newed calls to consider using different managers for separate asset classes. Many schemes might consider using a cash fund to enhance overall performance and would find it economic to do this through a pooled vehicle even if the remainder of their portfolio is invested on a segregated basis.

q Reduced fees There is considerable variation in fees charged on pool-ed cash vehicles which perhaps reflects some managers being keener than others to handle this type of investment. Moreover, by arranging for cash allocations to be invested in such a vehicle, one might reduce the value of assets left with the manager charging a higher fee on the balance of the assets. Managers would do well to remember that investors generally object to paying high investment fees for supposed added value management when this involves holding high cash balances.

q Greater security In the wake of the collapse of Barings, attention was fo-cused on cash balances and the way in which these were often concentrated with a single provider. Many managers responded by making arrangements to share their cash investment around a 'pool' of different cash managers, reducing the potential for loss through any one of them becoming insolvent. Some managers may not be able or willing to do this, but there are cash funds arranged on this basis.

Aiding these developments has been much increased competition; managers who have not featured in the pension fund market to date are seeking to gain access via cash funds. This will undoubtedly be boosted by the euro, which will effectively introduce price transparency within the euro-zone. Whilst some restrictions on investing monies across country borders may remain, the removal of currency risks will make comparisons be-tween the vehicles on offer in different countries much easier. If the euro is successful it should help to keep inflation under control, improving the at-tractiveness of cash for pensions funds.

Cash is increasingly being seen as more than just the 'float' which makes life easier for the appointed manager and it deserves the level of expertise and choice that is now to be found within cash funds.

Paul Haines is head of the European investment consultant practice at Price Waterhouse in London