UK - The £1.9bn (€2.9bn) Lothian Pension Scheme has cut its UK equities weighting by 16.9 percentage points, about £320m, in its main fund, in a further sign of a shift of defined benefits schemes away from the asset class, which WM Company predicted would lead to a £174bn shift of assets moving abroad.
The Lothian Scheme manages about £1.8bn in the Lothian Pension Fund (LPF) and more than £130m in the Lothian Bus Fund (LBF). The LPF has 80% in equities but on Wednesday announced that it was shifting from 65% of this portfolio in UK equities to 50%, with the remainder overseas.
Geik Drever, head of investment and treasury at Lothian, said the change to 37.5% from 54.4% of the fund’s assets in UK equities followed an investment consultancy review by Hymans Robertson. A further change was that 5% of the equity portfolio would be invested in unquoteds for the first time.
Figures from The WM Company show the current split for the average UK pension fund is 58% domestic and 42% international. For larger schemes with assets of over £1bn the split is already 50:50.
Eric Lambert, head of client consultancy at The WM Company, the Edinburgh based performance evaluation firm, said: “The withdrawal of assets from UK equities has been evident in our universe for a continuous nine years. The speed of change is particularly evident in the last three years as an increasing number of strategic reviews have advocated a move towards a 50:50 domestic to international split.
“I believe we are in an unstoppable trend towards 10% domestic and 90% international. The 50:50 split is merely an interim position in which trustees feel comfortable.”
State Street said, based on the WM forecast of a 50:50 split, this would mean £174bn moving overseas in the next few years.
The Hymans review for the LPF also recommended moving its US equities portfolio to an enhanced index and active managers. As a result, Goldman Sachs has replaced Putnam Investments to manage about £100m in enhanced index while Oppenheimer Capital has retained its mandate to manage about £60m in active equities.
Baillie Gifford, whose five-year mandates for Pacific and Japan equities, worth £90m and which ended this year, has been retained on a new mandate to manage Pacific (including Japan) stocks. Baillie Gifford has also been reappointed as balanced fund manager for the LBF and the five-year contract starts 1 July. Drever said the WM Average Fund benchmark had been replaced by a composite made up of 70% equity, 20% bond and 10% property.