UK – The National Association of Pensions Funds is in talks with the Quoted Companies Alliance about how to inform its members about investing in smaller companies.

A spokesman at the NAPF said: “We are talking with the Quoted Companies Alliance because we feel that pension fund managers need to be aware that there is a variety of investment strategies and a variety of types of investments out there and it is wrong to ignore certain areas and the potential rewards they offer.”

The two organisations are to publish a booklet on the risks and rewards of investing in companies outside the FTSE 350 index in time for the NAPF conference in the autumn. The NAPF regularly produces simple guides for trustees and members on various investment strategies and asset classes.

The number of pension funds and institutions investing in the UK’s smaller companies has been steadily decreasing. In its research last year, the QCA attributed the downward trend to several factors.

These included the growth of internationally-oriented investing as well as the desire by fund managers to deal in large volumes. Other reasons were: the ease of getting research on larger firms; lack of diversity; the growth of indexation as well as regulatory issues.

As one of its recommendations to increase investment in smaller companies, the QCA proposed educating pension trustees.

“In the same way that pensions’ trustees have been made aware of the option of ethical investments, trustees of smaller quoted companies’ pensions should be encouraged to consider investment strategies that include a spread of equity investments, including smaller quoted companies.

“The current gradual shift in the UK from balanced management to specialist management (as is normal in the US) should be encouraged whereby funds investing in UK equities benchmark against small cap and mid cap instead of just benchmarking against the All Share index which has the affect of concentrating investment in large companies.”