GP Panel re-risk into equities

Global – Some 44% of the GP 100 Panel are taking advantage of lower equity valuations to re-risk their portfolios.

The findings support observations by JP Morgan Transition Management officials who told Global Pensions last month that UK pension funds are showing early signs of re-risking.

Executive director, EMEA technical sales specialist for transition management Robert Calder said: “Now with the market levels, we believe a lot of pension funds are reconsidering their approach to de-risking, not reducing their allocation to equity and increasing their allocation to bonds, because bond yields are not at the right levels.”

“We are actually seeing indications of pension funds looking to re-risk, which is a change compared to the last couple of years.” Instead, pension funds are putting their moves into fixed income on hold and considering taking advantage of low equity prices, he said.

Managing director, global head of strategy and implementation, regional head of transition management EMEA, Michael Gardner said there has been a high frequency of pre-trade assessments and analysis before transitions, which he has interpreted as indications of pension funds looking to re-risk.

He said the lack of certainty in the markets is what has slowed pension funds from moving. “I think a lot of people right now are saying, let’s wait until the market has a little bit more certainty, lets wait until the market settles down and then we’ll address our asset allocation,” he said.

The move to re-risk is thought to be more long-term rather than opportunistic. “I don’t necessarily see most pension systems trying to work tactically, it’s more about long term strategic targets and managing those targets, so they can get the return they expect and hope to achieve,” added Gardner.

Some of the panel members, however are hesitant to load up on equities, with one respondent saying: “Credit opportunities are still very attractive. Prices on credit instruments fell during the same periods as the equity markets but will likely provide far more consistent returns if the economy remains weak due to their much higher yields.”