UK/SCANDINAVIA - UK pension funds are lagging behind their Scandinavian counterparts in allocating to alternative asset classes, a consultant says.
LCP investment partner Clay Lambiotte (pictured) said while equity allocation among UK schemes is fairly well diversified globally, in terms of alternatives there is a big difference in allocation compared with Norway and Sweden.
Lambiotte said: “They [Scandinavia] tend to have quite a broad mix – hedge funds, currency, commodities, infrastructure – and invest in more funds with a lot of managers and have a different governance structure too.”
One reason UK funds are not looking to less liquid alternatives, such as infrastructure and private equity, is because continued closure to future accrual and the trend towards de-risking – through buyout – means their investment horizon is not as indefinite as ten years ago when schemes were still open.
Lambiotte was speaking after research by Towers Watson found the top UK pension fund in a list of the world’s top 300 pension funds as per assets under management – BT – was only 40th. Meanwhile, Norway’s Government Pension Fund – Global was in second place with $476bn (£309bn).
However, he said the UK’s position was a function of its corporate environment and the way the market has developed – not down to poor performance or bad asset management.
He added: “As schemes look to de-risk, the obvious asset is government bonds but with yields so low there is not interest – that is where we are seeing a push into absolute return and diversified growth.”
Towers Watson EMEA head of investment Paul Trickett agreed that the positioning of UK pension funds reflects an older pension system further in its lifecycle.
“The things growing and increasing are the sovereign funds, which are young and have strong cash flows, while most of our big DB schemes are very mature and no longer have strong cash flows,” he said.
Trickett said the major UK schemes are in fact likely to fall down the ranking because they are very mature and are not growing in terms of liabilities.
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