GLOBAL- Watson Wyatt has warned clients they will incur further losses if they rebalance their portfolios before conducting a strategic asset allocation review.
The firm suggests the increased level of uncertainty in the markets, higher volatility, and "potentially higher expected returns per unit of capital invested," could call for a lower allocation to risky assets going forward.
Because of steep drop in equity markets, investors are no longer overweight riskier assets like they had been in the past, the letter said. According to data by Watson Wyatt, investors in the seven largest pensions markets allocated 42% to equities, down from 51% five years ago.
Watson's European head of investment consulting Paul Trickett said: "Recent market events have severely challenged pension funds' strategic asset allocation choices… Pension funds now face difficult choices between looking for de-risking opportunities or re-building risk allocations."
A number of pension schemes have been prompted to lock in gains with a move into bonds after the estimated deficit across FTSE 100 DB pension schemes improved by £36bn, over the 12 months ending 30 June last year, JLT Employment Benefits found.
HM Treasury has agreed in principle to give NEST a £329m contingent liability guarantee in the event of the master trust's wind up or closure.
AMP Capital has set up a dedicated team to help institutional investors, including pension funds, invest in infrastructure through direct equity allocations.