Despite the continuing investment crisis in the Far East, many European pension funds report minimal losses in the region, citing cautious benchmark strategies in recent years as the reason.

Others are sticking to their long-term guns and riding out the storm, firm in the belief that the worst of the slump is over. And indeed sights are already being set towards reinvestment in the area, as the Japanese authorities begin to tackle their banking system malaise.

The overriding message, though, is proceed with care.

Neil Burton, finance manager for employee benefits at the Cadbury Schweppes pension fund in the UK, says the financial fallout in the Far East has not prompted any 'panic' action in its investment strategy, outlining the long-term approach adopted with the scheme's assets.

In the case of Japan, we see it as just one of those things that happens with markets, and as a result we are not going to take any rash action and withdraw our investment," he says.

The scheme has around 10% equity exposure to the Far East, with specialist bond managers investing on a discretionary basis. The rest of the invested portfolio comprises a 50% UK equity holding and 20% in bonds.

"We have certain benchmark ratings in Japan, but we have not rebalanced our assets in any way. The specialist managers have just allowed levels to dwindle with the market fall so that we are now underweight as a result of the lower value, but in fact they have consistently beaten the index, so the drop has not been as sharp as in the market," Burton says.

Likewise, he adds, the recent falls in the UK market are not causing the fund undue distress, arguing that statistically both markets should bounce back.

"Our asset liability is the major mover here for investment decisions and we are still following the actuarial assessment we carried out six years ago. We do regularly examine this though and if needs be adjust our positions, but not for market cycles and blips," he stresses.

Jan Knol, investment manager at the Heerlen-based Dfl7bn ($3.4bn) pension fund of Dutch chemical company DSM, says the effect of a 10-year bear market in Japan has pushed its portfolio weighting in the Japanese market to half of its normal 12% level.

As a result, he says the current economic crisis has had no significant impact in itself on an already tempered Japaneses position.

"We had no specific positions in Malaysia or Korea either, so fortunately we were spared there, and we certainly haven't committed any more cash to the Far East as a result of the crisis. However, our outsourced emerging markets portfolio, which includes Asia, has tumbled from its strategic rating of 10% to 3%, due to price downgrading in the market - so we have been hit in that capacity."

The fund's current portfolio weightings come out at 51% in fixed income, of which 90% is in the Dutch market, and 40% in equities, with just under half in the Netherlands, 15% in Europe (ex UK and Germany), 9% Germany, 7% UK and 6% Japan.

Knol says the fund's next step will almost certainly be to increase its Japanese weighting: "But at the moment there are still no clear signs of recovery to prompt the move yet." He believes this caution is being echoed amongst Dutch investment managers, with a wait-and-see ap-proach deployed across the board.

Irish airline company Aer Lingus says a very modest fund exposure to the Far East as the result of a cautious investment approach has spared the pension scheme from any material damage on returns.

Bob O'Reilly, group pensions manager, added: "By and large we were very unbullish in Japan, with weightings well below typical equity rates and we completely avoided countries like Indonesia, so the impact has been minor."

O'Reilly feels the Aer Lingus position reflects the status of many of Ireland's funds, which tend to focus closely on the domestic market, followed by the UK, Europe and the US.

"To the best of my knowledge Irish investment managers typically have around 35% in the Irish market, so by the time they have looked at the other major areas, there is little left to Japan or emerging markets - certainly this seems the case at the moment," he says.

Similarly, Petra Zamagna, head of asset management at the pension fund of German chemical giant Hoechst, says limited Japanese exposure has resulted in minimal return fallout.

"In Japan we have below 5% in equities, principally because we invest in companies on a global basis, many of which may have strong business in Japan but are not being steamrollered by the current economic pressure. In fact, these funds have performed extremelywell given the circumstances," Zamagna explains. Nor does Hoechst have any current exposure to emerging markets, eliminating any domino risk from the Japan dilemma.

However, Zamagna adds that Hoechst is increasingly tempted to increase its position in Japan: "We have never had a fully fledged Japanese position and the country profile looks very in-teresting at the mo-ment, but the eceonomic situation is still not sure enough for us to move in. The Japanese government is still playing a crisis avoidance game, when they should admit the damage has already oc-curred, take a scalpel to the wound and clean out the infection." "

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