Equity-biased UK authorities lose out – WM
UK - State Street's WM pension fund estimates for 2008 have shown that schemes with a bias towards equities such as local authorities will be more affected by the market turmoil than their more bond-heavy corporate cousins.
It said: "Initial estimates for the WM UK Defined Benefit Pension Fund Universe and the WM UK Charity Fund Universe suggest that the average pension fund trustees will be looking at negative returns of 13%, while charity trustees will be faced with returns of -19%."
And it added: "Those funds that have an equity bias, such as local authority schemes and many charities, will be most adversely impacted while many of the corporate schemes, which have a relatively high commitment to bonds, will fare relatively better."
State Street, which on December 3 announced up to 1,800 job cuts in a bid to reduce costs, said the catalyst for the returns is the ongoing concern about liquidity which emerged in mid 2007, gathered pace in 2008 and has now translated into a global slowdown.
The decline of the pound "absorbed some of the pain for the sterling investor".
"Although the returns we've seen over 2008 are not surprising given the slowdown in the global economy, we need to remember that these funds are long term investors and the annual results need to be viewed in context. The negative returns of 2008 followed five years of extremely strong investment performance," said Jeanette Patrizio, vice president of State Street Investment Analytics.
"Over the last decade, a period which includes not only the latest year but the negative returns from the fallout of the dotcom bubble, the average fund is still up more than 4% per annum, ahead of RPI for the same period."