Fund managers in pensions shake-up

PENSION fund managers have begun reacting to the downturn in global stock markets by diversifying their investment choices and lowering their exposure to equity markets.

A new survey, conducted by business consultancy Mercer Ireland, has found that 47% of Irish-based pension schemes have indicated a further decrease in their levels of equity exposure, with many moving from equities into bond investments and non-traditional asset classes.

In all, the European-wide survey — of more than 1,000 pension funds across the continent — found that 60% of respondents expect to introduce new investment opportunities into their portfolios in order to help mange future investment risk.

The change of approach is in direct response to last year’s unprecedented market downturn.

“European pension funds have all felt the effect of the last year’s market turmoil. The banking crisis has highlighted the operational risks associated with the investment of institutional assets and brought counter-party credit risks more into focus.

“Funds are now looking at ways to manage the risk inherent in their schemes, in part through further diversification of their assets,” said Brian Griffin, head of investment consulting at Mercer Ireland.

While bonds continue to be the dominant asset class in most European countries, an increasing number of funds are diversifying to non-traditional investment opportunities. According to the report, in Europe, schemes favour hedge funds and high yield bonds.

“The pattern of allocation to non-traditional asset classes varies from market to market, due both to historical trends and preferences and to the level of sophistication of investors,” added Mercer’s Noel Collins.