UK - Property and private equity will be the most attractive alternative investment classes for pension funds in 2004, new research predicts.Standard Life Investments' annual Global Horizons report says both asset classes are likely to be safe and profitable in coming months.
The firm said that while the classes were traditionally viewed as risky and illiquid by pension schemes, continuing stock market volatility would make them an essential portfolio diversifier.
Head of global strategy Andrew Milligan said: “A key message from the bear market was that portfolios became too concentrated in one asset class, which happened to be equities.
“Pension fund trustees should therefore ensure their scheme invests in a diversified portfolio of assets with an overall mix likely to be less volatile but without sacrificing too much return.”
Milligan said risk could be reduced by focusing on subsections of the market, such as buyouts and fund-of-funds.
Milligan added: “Also, our analysis of the costs of property transactions suggests that if fund managers’ objectives are to stick to a fixed weighting, then the costs of property’s illiquidity are negligible.”
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