UK - Pension funds have failed to produce a positive real rate of return over the last three and five-year periods, new figures show.
Russell/Mellon CAPS says weighted average returns for UK pension funds in 2002 was -12.9% – the third consecutive year of negative returns.
But its UK Pension Fund Analysis 2002 shows that real returns over 10 years are positive at 3.2% relative to earnings and 4.8% relative to retail prices.
The median return for pension funds was -15.5% for the year, indicating that larger funds had generally performed better than their smaller counterparts.
Russell/Mellon CAPS research and development director Alan Wilcock explained: “The larger funds typically had less in UK equities, which performed poorly, but more in index-linked and property, which performed well.”
Pension fund investment in UK equities fell from 47.4% to 43.4% last year while investment in overseas equities rose from 25.0% to 25.1%. Investment in bonds soared from 17.7% to 20.3%.
But this shift would have been more noticeable had pension schemes not sold bonds and bought equities in a desperate effort to remain within their benchmark.
Wilcock said: “Funds have been forced sellers of the assets that are doing well and forced buyers of the assets that are performing badly.”
The Russell/Mellon CAPS survey also found that more than half of pension schemes with more than one asset manager had made changes to their portfolio during the year while only 4% of schemes with only one manager made such changes.
This increased activity is down to more pension funds moving towards scheme-specific benchmarks. Only 68% of schemes had scheme-specific benchmarks in 2001 compared with 77% by the end of 2002.
Russell/Mellon CAPS measured the performance of 1527 funds, representative of 3672 portfolios and holding total assets of £311bn – over 50% of the occupational pensions market.
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