Will the bench mark of the average UK pension fund change as a result of the Euro,? This question was posed by Alan Rubenstein of Morgan Stanley & Co International to the UK's National Association of Pension Fund's (NAPF) annual conference last month.

For European investments, given the way that most UK pension funds will want to continue to measure the Europe ex-UK performance, against a broad pan European index, I think the answer is 'no'. At the overall fund level, the answer is again 'very little'."

He said that he did not expect to see many funds rerunning their asset /liability studies under revised assumptions, adding : " I would expect to see some changes at the margin the next time and ALM study is done."

If much of the euro-zone did move to a euro-based benchmark for what were domestic assets, as was likely, this would affect investment flows and performance in the longer term. The market capital of the non-joining countries was fractionally larger than that of the 'in-countries', he noted.

More generally, he said, it was not known how the new euro-zone will correlate with the world blocs. "One thing we can be confident about, though the scale will only emerge over time, is that the volatility of the euro-zone is likely to be greater than be-fore." On the equity side, he saw the trend being to sector-based investment and global investments.

"The challenge for international bond managers, particularly those active in Europe, is to add value now that the convergence play is over." The smarter managers would go to look at credit risk moving from government . "I find the evidence from the US on the added value of this approach compelling."

Referring to the change over to euros at the beginning of 1999 over the 'conversion weekend', when balances in participating countries' currencies will be changed. "The scope for error is enormous. I would there fore check my pre and post euro valuations even more carefully than usual to ensure stocks have not got lost, or ben ascribed inaccurate book or market values." The same rules applied to stock-lending and repo agreements, Rubenstein noted. "Stocks in euro zone lent out or repo'd prior to year end will leave in one currency and return in another." He wondered if it would be worthwhile getting collateral in the same legacy currency or in an unaffected currency, such as dollars, over the end of 1998.

The arrival of the corporate debt market was described as a "ray of hope", said Mike Denham of Prudential Portfolio Managers. "In essence, corporate bonds offer a better cash flow match against mature liabilities than do equities, but coupled with higher long term returns than gilts." Corporate bonds fill the gap between equities and fixed interest.

In the US, the market has developed so far that pension funds there can allocate to a range of corporate debt sectors, ranging from high quality issued by blue chip corporations down to high yield by riskier companies.

Ten years ago the UK corporate debt market was non-existent, said Denham. "Today the market has grown and is now well in excess of £100bn ($162bn), around half the size of the gilt market." He saw EMU as another spur to the growth of the corporate debt market.

Looking at 75 years of the NAPF's existence, Ann Robinson, its director general, said that to ensure the continuance of good occupational pension provision, there were a number of principles to be observed. "First employers provide pensions voluntarily. Therefore the regulatory environment must be such they are not discouraged." Second, employers have used funding for the pensions they pay, now these came to £800bn. "the funds own one third of the UK stock market by value and have in the past 10 years become key players in corporate governance."

On the issue of taxation, she said: "Pensions should be taxed, but taxed once and once only when they are received and available for consumption." Fennell Betson"