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Credit crisis triggers investment reviews

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  • Credit crisis triggers investment reviews

GLOBAL - Over three-quarters of pension funds are currently reviewing their investment strategies as a direct result of the credit crisis, research by Bfinance has revealed.

Findings from a survey of 27 pension funds based in the UK, Germany, Switzerland, Sweden and Canada indicated while 63% are already reviewing their investment strategies, 65% of the remaining schemes polled intend to start a similar process before the end of 2008.

The results also revealed 77% of respondents, including corporate and public pension funds, admitted the financial crisis has caused them to review fund managers, while 30% said they would be more likely to seek advice from external consultants on both strategic asset allocation issues and manager selection.

In addition, the respondents - 53% of which had more than €1bn assets under management - appeared to favour an overall decrease in long-only equities over the next year, while 37% said they expect to reduce equity allocations in the next 12 months and 30% expect to increase investments in fixed income.

The next 12 months also appears favourable for hedge funds and private equity as 15% of respondents said they expect to increase allocations to these asset classes, while 11% expect to increase investments in commodities and 7% intend to invest more in currency.

Over a three-year period, the move towards these 'alternative' investments will become more pronounced, the Bfinance study suggested, as none of the schemes polled indicated they expect to reduce their allocations to private equity or commodities but allocations are instead likely to be increased by 30% and 26% of schemes respectively.

Hedge fund investment will also be a target as 26% of respondents said they will increase their allocation while 22% intend to invest more in currency overlay and 15% predict there will be an increase in the use of Global Tactical Asset Allocation strategies by 2011.

David Vafai, chief executive of Bfinance, said: "Funds seem to be challenging the classic 60/40 split model of asset allocation. This appears to work well in rising markets but, as we have seen over the last few months, can leave a pension fund manager watching hopelessly as their assets fall and their funding situation deteriorates."

Instead, he said the survey suggested "absolute return strategies seem to be the clear winners in the short- and medium-term and that we may see a move away from beta/ long-only strategies in favour of alpha and uncorrelated strategies".

He argued investment policy guidelines "can seem relatively inflexible as the environment changes can make it difficult for pension funds to adapt quickly and may result in little opportunity to lock in gains when appropriate," and suggested pension funds will be seeking more independent and transparent advice.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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