Pension consultancy firm Watson Wyatt says it is advising its clients to move away from equities and that it knows of “very few” firms that invest in accordance with best practice.
The firms says that it is advising many of its clients to diversify out of equities and into other assets such as property, high yield and emerging debt and hedge funds.
It adds that pension funds should consider a “less static” form of asset allocation, adapting their benchmarks to take account of the change in valuation of stocks and bonds.
“We recognise that this represents a major policy shift for most funds and may require a significant increase in governance,” said the firm’s global head of investment practice, Roger Urwin.
He adds: “But lower risk should be the result without giving up much return.”
Urwin also said that few funds adopt best practice in terms of investment. “We know of very few funds that are investing in strict accordance with the best practice investment thinking, which is not surprising when ideas about investment efficiency change so rapidly.”
“We see the exploitation of skill and liquidity as a growing opportunity for funds with the most resourceful governance.”
Urwin also sounded a note of caution over defined contribution (DC) schemes. He said: “A sound long-term DC strategy should be influenced by the future earnings power, circumstances and the goals of each individual. It is this added human element that makes DC plan design particularly challenging. A one size fits all is suspect.”
Urwin made the remarks in a statement accompanying the release of the consultant’s 2003 Global Investment Review.