LONDON: A study has revealed that as much as a third of pension funds have reduced their exposure to equities and have gone in for bonds, which are said to be a safer mode of investment. The National Association of Pension Funds (NAPF), in its annual survey, found that as much as 30 per cent of respondents have cut down their exposure to equities in the last one-year, and 25 per cent of the respondents have increased their holdings in bonds.
NAPF also found that pension funds are now increasingly interested in investment modes other than equities and bonds. Nearly 13 per cent of the funds have increased their investments in property and 11 per cent in commodities and hedge funds. The survey covered 352 NAPF members, who run defined benefit pension schemes, managing nearly 750 billion pounds worth of assets, finding in detail how investment decisions are made. NAPF said as much as 50 per cent of the funds surveyed are continuing to admit new members.
While interest in property is a significant finding, NAPF said the respondents preferred it for its low correlation with equity market movements. Nearly half of the respondents are also investing in derivatives.
Many of the final salary-based pension funds are running deficits as a result of a combination of poor investment decisions and increased longevity of the members. Employers are then forced to bring in funds, mostly from their surpluses, while some of the companies have devised schemes for employees to increase their contributions to the schemes.
NAPF's chief executive Christine Farnish said, "There are a variety of factors at work here, including greater longevity, lower interest rates, new accounting standards and a tighter regulatory climate. This combination of developments is leading UK pension funds to steer away from traditionally higher-risk investments, like equities, and towards safer options."
More recent falls in bond yields have led to increased deficits. Yields on long-dated 50-year index-linked gilts fell to 0.38 per cent last week.
Posted
on : Thu, 26 Jan 2006 08:45 GMT | Pensions News
By : Anne Philips
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