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Pension funds shun UK equity

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  • Pension funds shun UK equity

UK - Pension funds have never invested less in UK equities, according to BNY Mellon Asset Servicing, as its own an asset allocation study has found weightings in the asset class slumped to 28.7% in 2007.

UK equities, which still took up 34.4% of pension funds' assets in 2006, lost out to fixed income, cash and alternatives last year, as pension funds doubled their allocation to these asset classes.

Alan Wilcock, performance and risk analytics director at BNY Mellon Asset Servicing, commented: "While UK equities have been declining as a major asset class for UK pension funds over the last few years, 2007 saw the largest fall to date."

He added: "UK bond allocations, including index-linked, now exceed UK Equities for the first time ever."

Bonds and index-linked fixed income were the most popular asset classes, increasing from 23.9% to 27.6% and from 7.8% to 9.6% respectively.

Within bonds, corporate bonds or 'non-gilts' have surged in value over recent years, and marginally overtook allocations to gilts in 2006.

By the end of 2007, allocations to non-gilts at 14.1% were ahead of UK treasury bonds at 11.8%. Cash weightings increased to 3.1%, up from 1.7%.

Looking again at equities, the study found overseas equities weightings fell from 28.3% to 26.4%, and the split between UK and overseas equity is now almost 50/50, according to the study.

UK pension funds' global equity holdings fell for the eighth consecutive year from 62.7% in 2006 to 55.1%.

The study concluded allocation to other assets increased during 2007 from 0.8% to 1.6%, reflecting the greater number of pension funds investing in alternatives, such as hedge funds and private equity.

If you have any comments you would like to add to this or any otherstory, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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