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UK pension schemes shift away from equities
16 April 2013
The majority of schemes are increasing their exposure to corporate bonds and alternatives
UK pension schemes
UK pension schemes are increasingly turning away from equity investments in favour of greater diversification, Aon Hewitt's Global Pension Risk Survey 2013 has found.
The survey, which covered over 200 UK pension schemes with over £300bn of assets under management, found that 41% of UK schemes intend to cut their UK equity allocations over the next 12 months, while over a quarter (28%) intended to reduce global equity allocations.
Although some schemes see current market conditions as a potential equity buying opportunity, most schemes intend to increase allocations to corporate bonds and alternatives, as well as looking to use derivative strategies and active asset allocation as part of more diversified investment strategies.
John Belgrove, senior partner in Aon Hewitt's investment consulting team, said the survey showed a structural shift in UK pension schemes' investment approach: “Despite an equity performance recovery of around 70% from the low point of 2009, pension schemes continue to display a desire to move away from the asset class. While equities will continue to play an important role in scheme portfolios, the focus for the future is on risk management through hedging and diversification. The 'cult of the equity' is history for defined benefit schemes.”
The survey found that while average equity allocations have fallen from around 80% to 40% since the turn of the century, bond allocations have doubled from around 20% to over 40%.
The survey also showed a clear distinction in investment goals between larger and smaller schemes. Schemes with over £1bn of assets were more likely to increase their bond and alternatives allocations, with the ultimate aim of self-sufficiency. Smaller schemes, with assets of less than £1bn, were more likely to look to buy-out via an insurer as their long term goal.
"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,” Belgrove added.