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UK funds step up diversification to offset volatility

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  • UK funds step up diversification to offset volatility

UK - More UK pension schemes are changing their asset allocation and they now see emerging markets investments as a way to reduce volatility within their fund, according to a survey.

According to Baring Asset Management's annual poll of UK pension schemes, 65% of respondents - out of the 86 responses obtained by Baring - have recently changed the asset allocation of their fund, a 50% increase from last year.

In addition, 65% of respondents now invest in multi-asset strategies. 

The asset manager said that the decision to diversify was driven by the need to reduce funds' volatility and to cut back on the level of correlation between assets.

Andrew Benton, head of UK and international institutional sales at Barings, said: "This research clearly shows that the concerns of UK pension fund managers centre on the need to manage volatility and protect against extreme losses. Achieving greater returns is secondary given the current turmoil and ongoing situation in Europe. 

"That said, the changes that are being made to pension funds demonstrate a desire among managers to have a more dynamically managed portfolio. 

"The increase in allocation to multi-asset and diversified growth strategies suggests pension professionals are looking for equity-like returns without the levels of risk."

Emerging markets seem to be the most common response when it comes to asset allocation diversification, with UK pension schemes focusing more especially on Asia.

According to the research, 62% of respondents felt that emerging Asia has the biggest potential for equity gains over the next 10 years.

Other pension funds across Europe are currently adopting the same approach.

Earlier this month, Alessandro Stori, general manager of Italy's €1bn pension fund, Fondenergia, said the pension fund was seeking to diversify more its investments to reduce volatility risk exposure.

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