Stuart Leckie, previously with Wyatts for many years, recently set up a consulting venture for Woodrow Milliman in Hong Kong. His observation of the current situation for funds is that: Within pension funds, what we have seen is the advantage of diversification by asset and by currency. Hong Kong retirement funds have been affected, but the damage has been limited. Exposure to European and US equities and bonds has reduced the negative impact. The average annual return was -7%, which is certainly a lot better than the -60% showing of the Hang Seng index."

Mark Saunders, a director for Asia at Tillinghast, Towers Perrin, comments: "The Asian economic crisis has had an impact on pension funds. Management thinking has changed in terms of diversification, choice of fund manager and guidelines given to the fund managers. Trustees and management are now more aware of the need to set out strategies and operational guidelines such as risk tolerance levels for their fund managers.

"Basically, over the past few years when equity returns have been good and markets booming in Asia, management have been happy to take 'risks' as the risk taken was essentially just the size of the upside. However, with the recent market crashes, management have become much more risk-averse and are now more concerned with the potential downside of investments.

"As a consequence of this behaviour, management's awareness of the need to diversify has heightened and we have seen evidence of such increased diversification. Furthermore, in practice the funds have become more diversified as the Asian asset content of the funds has fallen substantially in value, whereas the non-Asian asset content has not. Thus, unless the fund managers pump substantially more cash into the Asian assets and redeem part of the non-Asian assets, the fund will automatically have become more diversified.

"As part of the move towards diversification and increased risk averseness, management have been looking towards global fund management houses rather than specific local fund managers.""