UK - Moves by UK pension funds to better match their liabilities through a shift into bonds have been described by Chris Hitchen, chairman of the National Association of Pension Funds investment council, as "short-term thinking".
Addressing the NAPF’s annual investment management conference in Edinburgh, Hitchen said the long-term investor needed to be prepared to “think differently”. “Some time in the future, maybe in 20 years, we’re going to have significantly higher bond yields than we do today and I’m personally not keen on overly investing in asset classes at the top,” he said. “Those who need to match should do so but the others should think about it.” He added: “Are our liabilities actually bond-like? I feel the flight to bonds is rather short-term thinking. Even if you buy the longest bond, what you’re really doing is… taking a snap shot of your actuarial balance sheet and corporate balance sheet and reacting to that. It’s perfectly rational, perfectly logical… but the long term investor has to be prepared to think different.” Hitchen, who is also the chief executive of the Railways Pension Trustee Company which runs the industry-wide pension arrangement for the UK’s railways, added that UK pension funds were diversifying their investment strategies away from UK equities. “Where in the past a typical pension fund might invest half its total assets in UK equities, now it’s probably closer to a quarter on average,” he said. “My own team are on a path that will lead us to a rather low weighting and that’s probably about 15%.” The NAPF has consulted with the DMO over more long bond issuance. Hitchen said pension fund demand at the long end far exceeded the approximately £60bn on average issued by the government each year. He told Global Pensions any decision on increased issuance would be up to the Chancellor.
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