The Merseyside Pension Fund in the UK has revamped its asset allocation in order to help it recover from its £1bn deficit (US$1.98bn).
The fund¹s 4% increased allocation to overseas equity will see an additional 1% going to Europe, 1% to Japan, 0.5% to Pacific ex-Japan and 1.5% to emerging markets.
The 6% decrease in fixed income will be split between UK gilts (-3%), UK index-linked (-1%) and corporate bonds (-2%).
The change comes after the fund¹s latest actuarial valuation revealed its £1bn deficit. The review showed this represented a funding level of 80% relative to the funding target.
Leyland Otter, senior investment manager, Merseyside Pension Fund, said:
³The deficit will be recovered over 25 years through asset allocation changes resulting from the asset liability study.
³The asset liability study happens every three years and effectively sets our asset allocation going forward.² The latest actuarial valuation revealed if assumptions were to be based purely on returns available on conventional and index linked gilts, the deficiency would be as high as £2.5bn.
The actuarial valuation, compiled by Mercer, said it was not possible to construct a portfolio of investments which produced a stream of income exactly matching the expected liability outgoings.
But it added it was possible to construct a portfolio which closely matched the liabilities and represented the least risky investment position.
It said such a portfolio would consist of mainly long term index linked and fixed interest gilts. It said the greatest risk to the funding was the investment risk inherent in the equity based strategy.
Otter said: ³This represented the least risky portfolio, but clearly you are not going to get sufficient returns from that kind of asset allocation to recoup your deficits.²
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