UK - British pension funds turned their back on domestic property in 2006, with property mandates in the UK halving, the consultancy firm Watson Wyatt has found.
Despite awarding around 60% more property mandates in 2006 than the previous year, UK property only accounted for 44% of total mandates, down from 93% in 2005, the company found among the UK pension fund it advises.
According to the firm, clients increasingly want global opportunities. "Real estate is global, and will be increasingly skill driven," a spokesman said.
Simultaneously, UK schemes continued to increase their allocation to alternatives, particularly to hedge funds, with the number of those mandates doubling compared to the previous year.
Craig Baker, global head of manager research at Watson Wyatt, believes that reducing deficits and implementing risk reduction strategies has a high priority for many pension funds.
"Many are moving some of their assets away from benchmark-sensitive approaches to make meaningful allocations to alternative assets," he said. Absolute return approaches using alternatives are more likely to help reduce deficits, a spokesman added.
"New ideas in absolute return investing are being implemented more quickly as funds, plan sponsors and investment managers are realising the benefits of this type of investing, particularly using alternative assets," added Baker.
Furthermore, private equity investing has attracted "substantial" interest from UK pension funds, with the number of new mandates awarded increasing six-fold.
Baker estimates that the trend towards increased diversification using alternatives, among pension fund with better governance structures, is likely to continue as investment opportunities increase.
Although the fund of funds route will remain popular, "at the same time, some of the larger funds are likely to choose the direct route," he said.