UK pension funds move from equity into alternatives

Date: Friday, November 7, 2008
Author: IPE.com

Half of UK pension funds plan to decrease their allocation to equity in favour of increasing investments in alternative assets, though transparency remains a driver for allocating to the class, a new study suggests.

Cinga2, a consulting and research firm based in London, surveyed 150 UK pension funds in August on sentiments guiding their investment strategy - and regarding alternatives in particular - and found pension funds generally believe the asset class will give more attractive returns than traditional investments over the next 24 months.

Over 86% of respondents, most of which were UK public pension schemes, said given the lack of history behind alternative investments, statistics and transparency in many alternative investment funds performance might drive them to invest in them.

Around 67% of pension funds said they considered their equity investments as more important as most pension funds have over half of their investments in equities, while hedge funds and commodities are still not favoured.

At least 40% of funds said they would increase their holdings in hedge funds and almost 55% said they would allocate more to private equity as the general consensus was developed economies will worsen in the next 24 month.

Simon Haigh, director at Cinga2, stressed the survey was conducted in August, right before the major downturn in the markets and funds’ upbeat view on alternatives might have changed since then: “I suspect now there might be some very different views,” he said.

The study also looked at socially-responsible investing (SRI), and found many pension funds are seeing pressure to invest responsibly, particularly in the area of reduced CO2 emissions and waste, and recycling.

In a separate development, the UK Social Investment Forum (UKSIF) yesterday put out a discussion paper on sustainable investment opportunities in alternative asset classes for pension funds.

The organisation is aiming to generate a debate as to how pension fund can best take advantage of emerging sustainable investment opportunities.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com