UK – Pension funds in the UK are expected to increasingly turn to alternative asset classes and actively managed bond portfolios as they seek to address pension deficits, Aon Hewitt has predicted.
Discussing the UK results of its Global Pension Risk Survey, the consultancy said the shift would come as the funds continued to rebalance portfolios from a reliance on equities to an equity-bond balance – as evident by a doubling of bonds to 40% of assets, alongside the average equity exposure falling by half to 40%, since the beginning of the century.
John Belgrove, senior partner at Aon Hewitt noted that bonds were becoming the “dominant” asset among UK pension schemes, and that the focus was now on risk management, aided by hedging of liabilities and asset diversification.
The narrative of de-risking was further underlined by 41% of the survey participants – over 220 UK funds with £300bn (€350bn) in assets – saying that they would seek to lower their equity exposure further over the next 12 months.
“Our survey shows that an increasing percentage of pension schemes favour diversification into alternative asset categories and the active management of bonds which continue to play a central role in portfolios,” he said.
“We expect to see further demand from trustees for asset solutions such as diversified growth funds and even more use of derivatives as pension schemes strive to reach their long-term objectives.”
In other news, the Local Authority Pension Fund Forum has urged members to vote against the pay package of pharmaceutical company Astrazeneca’s new chief executive.
The forum said the £6.5m pay for Pascal Soriot, after only three months in the role, contradicted its policy, as Soriot had also received a ‘golden hallo’ of nearly £1m in lieu of his bonus at previous company Roche Pharma, where he was chief operating officer.
Kieran Quinn, chairman of the forum, said it was important for companies to understand shareholder views on remuneration.
“LAPFF has a pretty straightforward view on golden hellos – we don’t think executives should be paid for performance they have not actually achieved,” he said.
“That means we will challenge such awards whenever we see them, and will advise voting against the company’s remuneration report.”