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UK pension funds turn to alternative beta

01 April 2014

Ceri Jones investigates the trend for UK pension funds to offer diversified growth and alternative beta funds in place of more expensive alpha-based products

Read more: alternative beta UK pension funds

Humble pension funds targeting retail investors increasingly mirror the cutting-edge investment thinking of major public pension funds in Denmark and the Netherlands that lead the way in private pension provision.

One of the biggest growth areas in the UK defined contribution (DC) market in recent years has been diversified growth funds, which promise equity-like returns with low volatility.

Diversified growth is a wide umbrella term and some of its constituents are more tactical than others. They use derivatives to varying degrees, but they share the imperative to diversify across a range of asset classes, a principle espoused by huge funds such as ATP, at $111.8bn the largest and oldest pension scheme in Denmark, managed on behalf of 4.7 million Danes.

Further, like ATP, some diversified growth funds are now beginning to step up to the next level and are exploring so-called alternative beta strategies.

The term alternative beta...