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Pension funds feel confidence blow on ratings

GLOBAL - Market developments on the back of the credit crunch have shaken pension funds and institutional investors' confidence in credit ratings agencies, suggests a study by US consultancy Greenwich Associates.

A survey of representatives at 251 Asian, European and North American institutional investors - including plan sponsors and pension funds - revealed investors are concerned the disruption to trading and access to information about debt-related products in recent weeks, originating from the US sub-prime crisis, will continue to spread.

Moreover, the global liquidity crunch in the credit markets, caused by the collapse in the US sub-prime sector, caused near complete - albeit temporary - disruption to the use of fixed-income and structured products, and there is now mixed opinion about whether the impact of the credit crunch in some products is merely a short-term reaction or whether it is a wider structural problem which is likely to strike other credit offerings.

"Investors are divided when it comes to the question of whether the current liquidity crunch represents a short-term event or a structural crisis," according to Greenwich Associates consultant Lori Crosley.

"Fifty-five percent of study participants see the liquidity crunch as a structural crisis, while 45% see it as a short-term event," she added.

Fellow Greenwich Associates consultant Frank Feenstra goes further to suggest "a sizable share of participants say they have stopped investing in fixed income altogether for the time being".

At the same time, "a large majority" of pension schemes sponsors say the performance of structured products - popular on the European contintent with pension funds has decreased their confidence in credit ratings agencies.

Greenwich reports more than 45% of study participants have changed their portfolio's credit profile as a result of market, although this does, of course, include asset management and investment banking houses half of which have more than $100bn in assets under management

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