UK - The UK's two largest actuaries - Mercer Investment Consulting and Watson Wyatt - clashed over the merits of pension funds investing in bonds at the latest NAPF Investment Conference.
Mercer Investment Consulting accused advocates of keeping high equity weightings of “flawed thinking”.
European partner Jon Exley stressed that pension funds could increase the security value of their schemes to members by moving to bonds – a much safer investment class than equities.
He said: “Pension funds should invest in bonds not because of maturity but because it’s the right thing to do.
“The use of equities to cover unhedgeable mortality risk is flawed thinking – just because you take one risk doesn’t mean you have to take another.”
But Watson Wyatt senior investment consultant Nick Horsfall said Exley’s argument “did not reflect reality”.
“People should put more weight on pragmatism rather than theory when managing pension funds,” he said.
He explained that when Boots switched its pension portfolio and invested entirely in bonds it was able to lock in a surplus – something which most schemes could not do today as they simply could not afford to do so.
Horsfall added: “Why are we discussing a move to bonds today after such negative equity market returns?”
*More than three-quarters of delegates think pension funds are waiting to make a strategic switch from equities into bonds.
In total, 43.6% of delegates expected the shift to be more than 10%. Only 23.4% of delegates expect no shift from equities to bonds when markets recover.
Trustees made up 11.3% of the audience, pension fund managers totalled 12.9%, investment managers 41.6%, consultants 10.2% and other attendees accounted for 24%.
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