EUROPE - European pension funds no longer manage risk, they manage uncertainty, Create Research chief executive Amin Rajan says.
It found total pension assets in Europe were estimated to stand at €3.5trn (US$4.5trn), however, pension funds had seen more pain than gain this decade.
Rajan said asset values across the world were now "dropping like a stone" and the mark-to-market rules had turned the US sub-prime crisis into a global "black hole" that was deeper and darker than first imagined.
He said: "The risk-return features of most asset classes have become hugely volatile. The correlation between old and new asset classes has gone through the roof, strategic asset allocation looks like a casino game, [and] new products verge on financial alchemy."
Rajan claimed mark-to-market rules on the accounting side had also injected and "unpalatable" degree of volatility into the balance sheets of defined benefit (DB) plan sponsors in the private sector across Europe.
And he said undue short-termism, as well as large cash injections, promoted further plan closures and accelerated buyouts.
Rajan also warned pension funds could no longer count on their consultants and asset managers to help them navigate through uncharted waters without purposive action.
He said pension funds needed to enhance their own governance structures and investment skills to create a clear investment philosophy based on sound instincts instead of the "herd mentality" that was "responsible for poor asset allocation calls".
He added that asset managers must stop selling what they were currently and start selling what their clients needed - by creating products that were fit for purpose. Looking forward, Rajan said market recovery would ease the crisis, but not solve it.
"Without a sea change, Europe's pension promise will remain long on intentions and short on deliverables," he warned.
Standard Life has increased exposure to risk assets in three out of five funds in its Active Plus and Passive Plus workplace pension ranges.
Some 48% of employers are unaware of the services or help they offer to members of their defined contribution (DC) schemes, according to Aon.
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