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U.K. Pensions’ Penchant For Alternatives

A seismic shift in U.K. pension scheme allocations within the next few years is likely to see soaring allocations to alternative investments, according to a study by Greenwich Associates.

A seismic shift in U.K. pension scheme allocations within the next few years is likely to see soaring allocations to alternative investments, according to a study by Greenwich Associates. The study found that eight out of 10 U.K. pension plans expect to make major shifts in their assets with more money flowing to fixed interest as well as private equity, hedge funds and property funds at the expense of U.K. equity and international stock holdings. In contrast, only half of U.S. pension plans are planning big changes. Greenwich predicts, for example, that 55% of pension plans polled will lower their U.K. equity investments by 2008. Today, U.K. pension plans alternative investment allocations trail woefully behind other countries – only 13% of them put money in hedge funds, compared with 63% of their Japanese counterparts. In actual percentages of investment, only 1.1% of U.K. pension assets are in hedge funds, 1.2% in private equity and 6% in property. The survey suggests, however, that those sectors are in for a healthy boost, with 24% of respondents indicating they will up their HF exposure by 2008, with 30% intending to increase their private equity allocation and 34% plotting more for property funds. “U.K. pension funds are among the world’s least likely to have adopted hedge funds so far,” Greenwich’s William Wechsler says, noting the Brits’ ho-hum attitude stems from a lack of consultant enthusiasm for the products and the fact that the lay leaders of the funds lack direct fiduciary responsibility. Unfortunately, pension funds are getting more into hedge funds at a time when they’re earning less than the equities they soon will be abandoning. Yet, Financial Times notes, the changes are coming as the average fund ratios are decreasing at a time when a robust equity market should see it climbing.

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