GLOBAL – Watson Wyatt has estimated the average funding level in the global pensions industry at 80%.
And Roger Urwin, the firm’s investment head, says that some funds’ bond/equity split may need adjusting.
“According to Watson Wyatt, the global pension fund balance sheet had lost 40% of its value between 1999 and 2002 and now estimates an average global funding level of 80%, on a market value basis,” the firm said in a statement.
It was “considerable ongoing strain for corporate cash flows for at least the next five years”. This is the conclusion of its ‘Global Investment Review 2004’ released today.
According to Watson, the pension funds in the UK are running the highest value at risk, or VaR measure of all the major pension markets - an average of 20%. This compares to 19% in the US and the Netherlands. Swiss funds are at 16% with Japan and Canada at 11% and Australian funds on 10%.
“Our research would indicate that these are rather high levels of risk for many companies to be taking in a non-core area of business and that some funds’ bond/equity split may need to_be adjusted in order to reduce this to more acceptable levels,” said Watson’s global head of investment practice Roger Urwin.
“Companies and trustees clearly have some difficult decisions to make in terms of adjusting the risk profile of their pension fund, largely determined by their weighting in equities, to best address not only their liabilities but also their funding shortfall.”
Urwin added: “Given the state of pension fund balance sheets around the world, there has never been a more important time to maximise returns where possible, which is probably why long-term absolute return mandates are proving popular with pension funds.
Another attractive element of this approach is that it should foster a longer and more fruitful relationship between investment managers and pension funds.”