Pension funds lose $1.5 trillion in share slump

Date: Thursday, January 31, 2008
Author: Reuters

LONDON (Reuters) - The global share sell-off may have wiped up to $1.5 trillion (750 billion pounds) off the value of global institutional pension fund assets since the start of this year, consulting firm Watson Wyatt says.

With the average allocation to equities within pension funds in the 11 largest pension markets at 56 percent, they have felt the pain of the global equities market slump, while pension liabilities grew faster than their assets last year, said Watson Wyatt.

"2007 was a year of two distinct halves," said Roger Urwin, Watson Wyatt's global head of investment consulting. "In the first half pension fund balance sheets continued to strengthen, but faltering markets in the latter half largely undid these gains. Severe market events this year suggest that balance sheets will remain under pressure."

The UK had the highest allocation to equities in 2007 at 64 percent, while Switzerland had the lowest at 33 percent, said the survey.

Pension assets in the 11 largest pension markets -- Australia, Canada, France, Germany, Hong Kong, Ireland, Japan, the Netherlands, Switzlerand, UK and United States -- grew 9 percent to over $25 trillion in 2007.

But the asset growth rate last year was down on the five-year average of 12 percent, the survey said.

Asset allocation into equities during the course of 2007 fell from 60 percent to 56 percent, while money invested in bonds grew to 28 percent from 26 percent, as did the cash shifted into alternative investments, such as real estate, hedge funds, private equity and commodities.

"Last year we saw a shift out of equities into bonds and alternatives, a trend which is set to continue. However, funds still carry around a 20 percent overweighting to equities relative to global capital market opportunities," said Urwin.