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UK asset managers see pension shift to bonds

UK – A survey by the Investment Management Association has found UK asset managers expect pension funds to move away from equities and into bonds.

The IMA’s second annual asset management survey found that the current 56% of assets held by pension funds in equities was “expected to fall as funds adopt asset allocation strategies more closely mirroring life funds, which currently hold only 31% of assets in equities”.

Bond holdings by UK pension funds were put at 33% currently.

It said that the driving force is a move towards “liability-based” benchmarking. This approach was “now considered to be getting under way and likely to continue over the next few years”.

“There are also client demands for higher returns and a growing niche market for alternative fixed income products.”

“This year’s survey shows that the UK asset management industry is adjusting to changing client needs and market conditions,” said IMA chief executive Richard Saunders.

“The emerging trend of liability-based benchmarking is likely to result in an increased level of bond investment, and illustrates firms’ ability to adapt to a changing environment.“

The IMA found that the total managed in the UK by its member firms fell slightly to two trillion pounds (euros). Assets managed globally amounted to seven trillion pounds.

Of the assets managed in the UK, 37% are managed in pension funds.

Other findings include: more than 50% of funds are managed against customised benchmarks and that less than 20% of funds are invested passively.

The IMA found that the average operating profitability of UK asset management firms is 21%.

Separately, the pension scheme of commercial security printer De La Rue plans to raise its allocation to bonds “towards” 50% from the current 30%. The move came as the company unveiled a hybrid pension scheme for new members.

It said it has revised its investment strategy to “progressively increase the proportion of scheme investments in bonds from 30% towards 50%”.

The final salary section of the scheme would be retained for existing members, but there would be a new section for new employees which combines a final salary element with a defined contribution element.

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