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Special Report

Impact investing


Domestic pension investment falls to less than 50%

EUROPE – Domestic to eurozone investment amongst European pension funds has undergone a major shift with domestic assets now representing less than 50% of European exposure for eurozone based pension funds, according to the latest European Pension Fund Managers Guide for 2001/02.

Significantly, the number of domestic bond mandates has plummeted by 92% in just the last two years, with a corresponding increase in the number of eurozone and European bond investment briefs being taken up.
Mercer says the trend has been particularly marked in France and Germany, with eurozone bonds now representing 25% and 39% respectively, of total pension fund assets.
Julia Hobart, worldwide partner at Mercer, comments:
“ The overnight switch from domestic to euro denominated bonds, prompted by the euro, has created a change of mindset in the bond markets, with some interesting knock-on effects.
“ On has been the rapid emergence of the corporate bond market as well as specialist areas such as high yield bonds.”

Similarly over the last two years domestic equity mandates have fallen by 60% with eurozone equity mandates rising by the same amount.
The trend has been particularly prevalent in Ireland, Spain and Portugal, says Mercer.
In Ireland, for example, domestic equity investment by pension funds has dropped to 19% from 34% two years ago. Eurozone equities account for 15% today of Irish pension assets.
The figure is similar in Spain, while Portugal now invests 17% of pension fund money in eurozone shares.

Hobart says the shift has come somewhat sooner than predicted:
“ If anything the embracing of eurozone equities has happened rather faster than expected.
“ Most managers have also used the euro to reorganise their research along industry rather than geographical lines.”

Mercer says the domestic to eurozone shift by funds has presented a challenge to formerly home market orientated money managers.
“ Although it was predictable, the reality is that many individuals have had to change from being home market specialists to pan-European experts in a very short space of time.
“ This against a background of volatility has been no mean feat.”

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