UK – Watson Wyatt Investment Consulting says it advised on 17 swap transactions for UK clients last year.

“In 2005, Watson Wyatt advised on 17 swap transactions in the UK, up from five the previous year,” it said in a release. “The firm has now advised on 33 swap and related executions with a total nominal exposure of executed instruments of £20bn (€29.3bn).”

It added that most involved interest-rate swaps, inflation swaps or related instruments. The firm has also advised on other banking products offered to pension funds, such as option hedges, for 14 transactions relating to £7bn.

Last month rival firm Hewitt Associates said that more than 25 of its clients are implementing liability investment approaches using swaps.

European investment consulting head Kevin Carter said: “Risk budgeting, which has also now become a mainstream discipline means that liability-led investment programmes, particularly through the use of inflation-linked swaps, are more feasible.

“This development is likely to lead to continued growth in the swaps market, which could double in size in 2006, as pension funds and their sponsors find effective ways to manage risk through the careful use of these types of instruments.”

Watson also revealed that its clients awarded almost four times the number of alternative investment mandates (61) to fund managers than they did in 2003 (16).

And Mellon Analytical Solutions has found that pension fund investment in alternative assets has tripled in three years, from 0.3% by asset value to 1%, as at September 30.

It found that the “lion’s share” of pension fund investment in alternatives was through hedge funds and absolute return mandates.

It said: “More money was invested in these sectors than in private equity and venture capital combined.”