UK - Schemes' average allocation to equities has dropped by four percentage points since last year, research from Mercer Investment Consulting shows.
The study – which covers 360 UK schemes with assets totalling £112bn – found that the average benchmark allocation to equities is now 64%, with trustees said to be increasingly seeking to manage risk.
On average 34% of pension scheme assets are invested in bonds, with just 2% in alternative asset classes such as property, hedge funds and private equity, Mercer found.
Pensioners represent 36% of liabilities of the schemes surveyed – up one percentage point on last year.
Mercer worldwide partner Andy Green said the reduction in equity allocations came on the back of the equity market rally and was likely to be an ongoing trend.
He said: “The move is partly due to increasing pension fund maturity, but also reflects trustees’ desire to manage their pension fund risk.”
Mercer predicted a “significant increase” in alternative asset class investment among schemes in the coming year.
Schemes implementing active currency mandates are expected to rise from 5% to 15% over the next 12 months, while investment in hedge funds is expected to increase from 4% to over 10%.
Green said that trustees and scheme sponsors were still seeking to generate good returns by diversifying rather than simply moving from equities to bonds.
Mercer found that few funds had adopted a formal strategy to match all or the majority of their liabilities with investment in bonds or use of swaps. But nearly 20% of schemes were found to be investing all of new pension fund contributions into bonds.x
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