US - US funds are abandoning fixed income and turning to global equities and alternatives in an attempt to bridge the gap between expected returns on investments and future funding needs, says Greenwich Associates.
New research from Greenwich reveals US public and private pension plan sponsors reduced their average fixed income holdings from 26.8% of total portfolio assets in 2003 to 23.7% in 2004.
“Twelve percent of US plan sponsors tell Greenwich Associates that they expect to make significant cuts to their actively managed US equities over the next three years, and another 13% plans cuts in passive domestic equities,” said consultant Dev Clifford.
The observations are based on Greenwich Associates’ 2005 US Asset Allocation research. A new Greenwich report presents the key findings of the research, which reveals US funds are relying in large part on investment returns to address challenges in funding and solvency ratios.
Among US institutional investors, international equity holdings grew slightly more than 11% of total fund assets in 2003 to more than 13% in 2004. At the same time, hedge fund allocations grew to 1.6% of plan assets over the past 12 months.
In equity real estate, allocations increased from 3.6% to 3.8% of total plan assets while institutional allocations to private equity increased from 3% to 3.4% from 2003 to 2004.
Greenwich said more than a third of US institutional investors expect to make a significant increase to hedge funds in the next three years, while another 30% plan “sizeable additions” to private equity.
Consultants say the assets funding the increases will likely largely come from core asset classes.
“Of course, it is important to view these expectations with some degree of caution,” Greenwich consultant William Wechsler said. “Despite several years in which pension plan sponsors have predicted meaningful increases in their hedge fund activity, hedge fund allocations have only increased from 1% of total assets to 1.6% from 2002 to 2004.”
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