GLOBAL - Pension funds have been warned that hesitating over alternatives could see them miss out on potential high returns.
Following news the British Coal Staff Superannuation Scheme (BCSSS) has earmarked 20% of its assets for alternatives, asset managers have recommended pension fund trustees to be bolder with their portfolios.
Neil Walton, head of strategic solutions at Schroders, commented: “Diversification within a portfolio really is the key. A series of small allocations, say 2% each, committed over the course of a few years to different classes really is not going to enhance performance.”
Walton continued: “Of course trustees must understand where they are investing, but step by step investment of undersized amounts may not reduce overall risk.”
Walton was speaking at Schroders’ conference for pension fund trustees and consultants in Leeds, outlining the firm's Diversified Growth Fund which holds 45% in alternatives.
The audience heard how a double digit allocation to a range of alternatives, made sooner rather than later, could reduce a pension portfolio’s risk.
Mitesh Sheth, investment director at Henderson Global Investors, concurred: “Not all alternatives act in the same way. A commitment to one, illiquid asset, such as real estate, could see pension fund money sitting idle for some time.”
Sheth said: “Risk from one part of a portfolio should never dominate. Pension funds should think about meaningful allocations to alternatives and get in first.”
He concluded: “With alternatives there is certainly a first mover advantage.”
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