Schroders has suggested that its pooled fund clients adopt more globally diverse bond strategies for UK pension funds.
In its call for an increase in active, diverse bond strategies, the asset management group highlighted key market driving factors, namely the increased maturity of defined benefit schemes, the demise of the MFR and the greater freedom afforded to trustees following the Myners' Review.
Schroders noted that by the late 1990s UK pension funds were distributing about £14bn a year more than they were receiving in new monies and investment income.
Other suggestions by the asset manager included:
*Greater exposure to UK corporate bonds is the first step to providing higher returns whilst matching liabilities. Superior quality credit analysis is desirable to manage additional risk inherent in investment products that aim to provide extra return.
*Actively managed bond portfolios. Aside from the benefit of holding bonds from a wide range of issuers as advantageous in risk management, the company also points out that well defined decay in credit ratings over time is the real reason for actively managing a bond portfolio.
*Schroders also praises the US model of bond investment, adding that the Global Aggregate Bond Index (which contains over 14,000 securities from the world’s developed bond markets) could be incorporated into benchmarks to provide a complete set of opportunities for pension fund investment.
By Janet Du Chenne
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