EUROPE - Pension funds across Europe are still moving away from equities despite improving market conditions, Mercer research found.
The consultant's European Asset allocation Survey - of more than 1000 European pension funds with assets of more than €500bn (US$667bn) - found this was evident in more mature defined benefit markets, such as the UK, where the allocation fell from 54% last year to 50% this year.
In Ireland equity allocation decreased from 60% to 59% and in the Netherlands from 28% to 23%.
Mercer said this trend was likely to continue across Europe, with 29% of UK schemes and 35% of European schemes (ex-UK) planning further reductions in domestic equity. And a further 20% of UK schemes and 33% of European schemes (ex-UK) are planning a reduction in non-domestic equity.
Mercer senior investment consultant Crispin Lace (pictured) said: "It's evident from this research that many schemes are becoming more proactive and creative in their approach to investment strategy.
"The last 18 months have represented a time of unprecedented opportunity and a large proportion of schemes were quick to identify good investment ideas such as corporate bonds towards the end of 2008."
The consultant also found the allocation to bonds among UK funds increased from 40% last year to 41% this year.
A net 12% of UK schemes plan to increase their exposure to government bonds compared to last year where a net 6% intended to reduce their exposure.
With corporate bonds, the trend has reversed with just 16% of UK schemes looking to increase exposure compared to 27% last year.
The survey also found in both the UK and Ireland plans that are closed to new entrants have a 10% higher allocation to bonds than the average open scheme.
Investment in non-traditional asset classes increased in the UK and Ireland - both up from 6% to 9% this year - and Switzerland increased its allocation from 19% to 23%.
In the UK, schemes favour hedge funds, global tactical asset allocation and private equity with 4% to 9% of schemes holding some form of strategic allocation to one or more of these opportunities.
In the rest of Europe, schemes favour hedge fund of funds (8%), high yield bonds (8%) and private equity fund of funds (6.6%).
There had been more interest among UK funds in alternative debt such as high yield, distressed, and emerging markets - which look attractive compared to Western economies.
At least 16% of schemes looked to get exposure through emerging market debt and other assets, rather than through equities.
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