Yorkshire Reviews Asset Allocation, May Consider Alternatives

Yorkshire Building Society Pension Fund's defined benefit scheme, with just over GBP200 million in total assets, is reviewing its asset allocation and may make a 5% maiden allocation to alternatives. "We may consider something unusual [such as] derivatives," said Malcolm Horton, pensions administrator in Bradford. A sub-committee meeting is expected at the end of the month, he said. The move follows the scheme's decision to cut equity exposure as a risk-reduction measure. He did not say when the decision to trim its equity portfolio was taken or how much is comprised of U.K. equity but said its bond portfolio is U.K. dominated.

The building society is debating whether to go-ahead with a 50/50 equity/debt split—it currently has a 70/30 split. The scheme is concerned that the fall in its value at risk level, caused by paring its equity portfolio, will result in decreased returns. If the fund decides to go ahead with an equal split between equity and bonds, it will have to decide how to re-jig its equity portfolio to ensure returns. Otherwise, it may opt for derivatives.

UBS Global Asset Management is the sole manager for the scheme and has performed reasonably well over the last five years. Horton did not clarify whether UBS would run a derivatives portfolio if the move goes ahead. Watson Wyatt is assisting with the review.