SWITZERLAND - Pension funds should aim at making their assets work smarter rather than harder says Eric Hunt, group pensions manager at the £1.7bn (€2.5bn) BAA Pension Fund.
“We talk about making an asset work harder and it implies a sort of risky and aggressive approach, whereas smarter just says ‘there is a better was of doing this‚ a safe passage in difficult times’,” he told IPE on the sidelines of the IFM conference in Geneva.
He is a veteran of the scene, having worked for 25 years for the pension fund of airport operator BAA.
He said that pension funds - a “long term business” - should try not to panic in the wake of low returns and deficits, but concentrate on finding a safe route.
Hunt conceded this philosophy might seem difficult to pursue for pension funds with large deficits.
“I agree that for people who have big problems it is very difficult to sit back and say ‘we can sort this out over the next ten years’.”
Pension funds should make things happen by setting up a funding plan to decide how to close the gap between where they are and where they need to be. They need to “get the balance right”.
“Again it is about being a little bit smarter with each of the things that you are doing rather than chucking it all out of the way and saying ‘let’s find something completely different - let’s bundle into hedge funds because we think they are going to give higher returns’.”
The BAA fund, which has a coverage ratio of 105%, has always had a high equity allocation. The fund shifted its equity-bond split a few years ago from 85/15 to 70/30.
Hunt added it was also a matter of deciding how to diversify, looking at benchmark weightings, the balance between what is actively and passively managed, and the best geographical split.