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Pension funds must be brave on alternatives, creative on governance - Kitts

Date: Thursday, March 6, 2008
Author: James Molony, Thomsonimnews.com

Henderson's head of institutional business tells NAPF conference that smaller schemes may need to consolidate.

EDINBURGH (Thomson IM) - Pension funds should think more 'clearly and creatively' on governance issues and be 'brave' when evaluating investment opportunities, according to Arno Kitts, head of institutional business at Henderson Global Investors.

In his opening address to the NAPF Investment Conference yesterday, Kitts outlined a series of issues facing UK pension funds.

While he applauded UK schemes on improvements to their funding position in 2007 - and acknowledged that some risk reduction has taken place in the form of lower equities exposure and increased bond exposure - he also warned that schemes have further to go.

Kitts pointed out that UK schemes still have 40 pct of assets in UK equities which, as an asset class, accounts for 10 pct of the global market.

He continued: 'Bonds will not fund pension schemes and might even cause problems in the long-term.'

Kitts said pension funds must ask themselves: 'Am I are being brave enough in my approach to alternative investments?'

He said schemes should consider taking a bolder approach to evaluating potential investment opportunities, pointing to emerging, but still largely unexplored avenues such as agricultural land and film rights.

Kitts said pension funds could 'harvest the illiquidity premium' if they could 'wean themselves off this obsession with liquidity.'

Kitts said smaller schemes, who might not have the governance capability to cope with more arcane investment strategies, could consider consolidating with others.

From James Molony in Edinburgh: +44 (0) 20 7422 4926; james.molony@thomson.com