UK - Pension funds in the UK posted a “solid” return of 11% in 2004, propped up by property and equity yields, according to a survey by WM Co., the European performance measurement arm of State Street.
Earlier this week, Russell/Mellon said UK schemes returned 10% in 2004.
WM said real estate “continued its extended run of strong results” to finish the year up about 16.6%, while UK and European equities were up 12.7% and 13.7% respectively.
In the forecast, based on WM’s quarterly pension fund survey, gains from UK and Europe ex-UK equities have been estimated at around 5.6% in the last quarter.
Equity investments have paid off in spite of the slump investor confidence in equities triggered by the Madrid bombing, rising commodity prices and US deficits -counterbalanced by “improved economic growth” and “better news on corporate profitability.”
“Overall, with two years of steady growth behind them, pension funds have recovered most of the losses they sustained during the savage bear market between 2000 and 2002,” WM said.
But Graham Wood, a senior consultant, said the result should be put in perspective. “Low interest rates, improvements in life expectancy and modest inflation continue to cause the general deterioration of funding positions,” he said.
Full recovery will require more years of similar or better returns as well as higher employer contributions, he continued.
WM also said that North American equities gained around 12% in local currency terms, but the depreciation of the dollar, which fell by seven percent against sterling in 2004, meant that sterling investors netted less than four percent for the year.
Pacific ex-Japan (nearly 17%) equities did well, while Japanese equity performance recovered at the end of the year to finish at 8.7%.