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Credit crunch pushes pension flight from equities

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  • Credit crunch pushes pension flight from equities

UK - Nearly half of pension scheme managers have shifted their investments from equities to bonds during the past 12 months, according to research released by Aon Consulting.

In the survey of 100 defined benefit (DB) pension managers across the UK, Aon found almost a quarter of schemes (23%) reallocated a major shift from equities to bonds, while the same proportion reallocated a minor shift in the same way.

The survey also uncovered a more general growth of non-equity assets by asking a series of questions regarding changes made to investment strategies in the previous 12 months.

However, liability-driven investments (LDI) have not grown significantly since its survey in 2007, the consultancy said.

The stagnation is largely because of the relatively low levels of long-term interest rates, keeping the price of LDI strategies too high for many trustees and sponsors.

That said, Aon has found pension schemes have adopted a wider range of diversifying asset classes, with UK property being the most popular non-equity asset.

"Diversified growth funds have also proved popular with schemes, with a fifth choosing to invest at least part of their portfolio in such vehicles," Aon said today.

Over two-fifths have invested in private equity or hedge funds (absolute return funds), and another fifth has invested in diversified growth funds.

Daniel Peters, investment consultant and actuary, commented on the findings, saying: "Alternative assets such as funds of hedge funds that have low correlations with more traditional investments can be used to target a similar level of return to equities but with lower volatility."

According to Peters, while equity values fell over the first quarter of 2008, many funds of hedge funds have proven resilient.

"Initial indications show that during the credit crunch and the subsequent fall out already seen during 2008, volatility of these funds is considerably reduced compared to the traditional equity-only strategies."

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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