UK - Pension funds are being urged to transfer assets from equities to cash in the wake of big falls on world stock markets.
Share price falls have wiped billions of pounds off the value of pension funds this year.
And industry experts now believe schemes should switch funds gradually from equities to lower risk corporate bonds and gilts and then into cash after.
Figure by performance measurement firm WM Company figures estimate that pension fund returns in equities fell 17.3pc in the year to the end of August 2001. The terrorist attacks in the US have compounded the slump.
Cash management specialist Union Fund Management director Chris Chudley said the advantage of investing in cash was its safety.
Chudley said: “If a pension fund wants a high quality credit risk it should go to one of the bigger and better banks. Assuming the credit risk is correct at the end of the investment period the pension fund will get back its money with a significant amount of interest.”
Global custodian The Bank of New York said an efficient and effective way to invest in cash was through money market funds which are firmly established in the US and are set to take off in the UK over the next five years.
Money market funds are open-ended pooled investment vehicles that actively invest in a diversified portfolio of high quality short- term money market instruments including treasury bills, certificates of deposit and government bonds.
BoNY pointed out that the majority were triple-A rated and retained the liquid properties of cash while maximising the yield on residual cash balances.
BoNY head of pensions David Batten said: “These funds convert cash into a security. The assets are ring-fenced so they offer minimal risk and at same time provide attractive yields.”
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