UK - A growing number of UK schemes are increasing diversification of their portfolios following investment strategy reviews.
Major schemes – including the £7bn ICI Pension Scheme and £2.5bn Imperial Tobacco Pension Scheme – have moved to realign the distribution of their assets with overseas equities proving a major beneficiary at the expense of UK equities.
Bacon & Woodrow associate Martin Kraus said “Recent trends now show that pension funds are matching assets to liabilities by increasing overseas equities to limit risk return.”
“Pension funds have now been questioning the distribution of assets which have been around 65% UK equities and 20% overseas equities with a even smaller percentage in fixed income and property.”
Imperial Tobacco Pension Scheme said it will be increasing its share of global equities in order to gain additional value.
Buckinghamshire County Council Fund said it has increased its overseas investment to 34% and Avon Pension Fund said that it will be looking to increase its exposure to overseas equities and reduce its UK equity weighting.
Watson Wyatt head of European investment practice Nick Watts pointed at a similar trend where the increase in global equities over UK equities was evident.
Watts said: “It is not surprising to see the UK equity bias diminish. Pension funds with 50% overseas investments would have been unusual five years ago but is now not so unusual.”
Watts continued that the percentage of corporate bonds had now been included in strategic asset allocation benchmark. Previously pension funds have found the long end of the gilt market being expensive on an evaluation basis and so corporate bonds have proved to be a good alternative.
WM company director research and consultancy Eric Lambert said: “Our figures have shown for a number of years disinvestment from UK equities towards international equities.”
Lambert, however, said the move was not as dramatic as some consultants claimed. he pointed out that pension funds still held around 50% in UK equities – down from 55-57% – compared with 23% in overseas equities.
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