GLOBAL – Roger Urwin, global head of investment consulting at Watson Wyatt, says more pension funds globally are now more inclined to consider diversifying into bonds and alternative assets.
“The recent strengthening of equity markets has helped repair some of the massive damage pension funds around the world experienced from 2000 to early 2003,” Urwin said in a Watson statement.
“While stronger markets provided a welcome respite there remains more guarded optimism about future equity returns and as a result funds are now more inclined to consider diversifying their assets, mainly into bonds and alternatives.”
The comments confirm remarks Urwin made in January this year when he identified a “gradual move to lower equity allocations" in mature pension countries.
Today Urwin said that such “strategic changes” have not been commonplace in the last year with funds not wanting to lock in equity losses.
He added: “Despite high allocations to strongly performing equity markets and increased contributions in these countries during 2003, many funds have negative growth as they continue to pay more in benefits than they receive in contributions and investment income.
“The pressure to narrow the gap between assets and liabilities in these countries will force funds to improve their governance arrangements and make the most of their risk budgets.
“This should lead to increased diversity, better return-seeking potential and in turn reduce deficits.”
The comments came as Watson Wyatt released research which found that average funding levels of pension schemes globally have risen “to somewhere between 80% and 90%”.
It found that the total assets of the world’s largest pension funds rose by 19% to 6.6 trillion dollars – up from the previous high in 2000 of 6.2 trillion dollars.
And it revealed that the UK produced the lowest growth in value of assets (in US dollar terms), at seven percent.
Two European schemes, BAE Systems and Huisartsen of the Netherlands, were among the six funds that saw the highest asset gain, at 110.7% and 87.2% respectively.