Take up of LDI strategies in UK ‘limited’
UK - The implementation of liability driven investment (LDI) strategies remains limited among pensions funds, according to the findings of a survey by Aon Consulting.
The survey among 150 UK companies operating defined benefit(DB) schemes found that just 11% of employers had adopted some form of LDI strategy in 2006.
"A key factor is the perceived cost of such a strategy," said Paul McGlone, principal and senior actuary at the consultant in London.
The use of contingent assets for scheme funding is growing quickly in pension funds, with 17% of those plans surveyed using these assts in portfolios.
Contingent assets refer to assets where sponsoring companies or their parents give guarantees, letters of credit, escrow accounts, or properties or other assets are committed to meet funds' liabilities.
"While such assets do not generally remove risk from the employer, they can help manage the volatility and should make trustees more relaxed about any short term investment underperformance," he said.
The survey found that 30% of funds reallocated over 5% of assets during 2006 to bonds. This is part of a drive towards more diverse and risk controlled strategies.
Some 14% of pension funds diversified their growth assets over the past year to cut exposure to a single volatile asset class.
The greatest shift in 2006 was the return of the real estate sector, with 50% of schemes diversifying into property, according to the survey. Absolute return vehicles, such as hedge funds, involved 17% of funds and the use of global tactical asset allocation strategies, 11%.
The survey noted that some 27% of funds were still open to new members, 59% had schemes closed to new members though benefits continued to accrue, with over 14% of schemes were closed to new members and accruals.