Pension funds are reducing equity stakes in spite of current strong markets, said George Henshilwood partner at Hymans Robertson. At the recent National Association of Pension Funds’ conference in Edinburgh, he questioned whether this is due to changes in investment behaviour, caused by poor recent equity market returns, or driven by legislation such as the Pension Protection Fund levy.
The London Borough of Croydon Pension Fund and the House of Fraser Pension Plan have sliced their equity allocations for different reasons. Over the next three years, Croydon will cut its equity exposure to 75% from 100%. “We got stung,” said Nigel Cook, assistant director, referring to poor equity returns in the recent past. The scheme has earmarked GBP31 million for real estate and bond investments (GMM, 26/1).
House of Fraser is currently reviewing alternative strategies after being told--for regulatory reasons--to plug its deficit over a shorter time period. It has also decided to transfer 2.5% of total assets out of equity and into bonds every year (GMM, 25/11).
A recent Mellon Analytical Solutions study showed that pension equity weightings fell by 2% in the last year, resulting mainly from a fall in U.K. equity investments to 35.7% from 39%, the lowest recorded level since the mid 1970s.
Schemes can only speculate how the Pensions Regulator will flex its muscles to ensure the PPF does not bail them out. Though unlikely, the regulator may try to influence funding levels, capacity risk/return levels and volatility risk. Regulation has destroyed intellectual integrity, entrepreneurial flair and sensible risk taking said Philip Read, pensions manager at the Metal Box Pension Scheme..