LSE to switch DB equity assets to fixed income

UK – The London Stock Exchange (LSE) is to switch the remaining 25% -£41m (€64m) - equity portion of the defined benefit segment of its pension fund into fixed income which now accounts for £107m of the total £148m.

The exchange claims the move is in line with its long term strategy and says the decision to switch was taken back in March 2001.

A spokesman says the move is neither in response to poor market conditions nor to help make up the fund’s current £13.2m deficit.

The LSE is playing down comments made by chairman Don Cruickshank at Friday’s AGM that confirmed the switch to bonds was to curb the growing pensions deficit.

“These comments were taken somewhat out of context. The decision to change the investment strategy of the DB element of our fund was taken a long time ago,” says the spokesman.

“The DB segment has been closed to new members for three years now and there are only some 200 active members left in it. It’s simply a question of selecting the right investment for the right level of return. We feel this is right for the fund at this time,” he explains.

He says this is supported by the investment strategy of the defined contribution segment, which is exclusively managed by Legal & General. “This still invests predominantly in equities and there are no plans to switch to other asset classes.”

The DB segment was originally split equally between equities and bonds. The bond weighting increased to 75% during the LSE’s financial year to March 31 2002 and the decision to move to a 100% fixed income portfolio was taken by the trustees at the company’s 2001 AGM.

The trend among UK pension funds to reduce their equity weightings in favour of bonds was spurned by the sudden announcement last October by the £2.3bn Boots pension scheme that it had sold its entire equity holdings and replaced them with bonds.

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