By Mohamed Ali Bernat Pension funds have been moving to adopt more scheme-specific benchmarks but it...
By Mohamed Ali Bernat
Pension funds have been moving to adopt more scheme-specific benchmarks but it is having little impact on the way in which the funds invest.
Caps, which provides performance measurement and investment information by assessing more than 1,700 UK pension funds, reported an increase in the proportion of funds in each size band with a bespoke benchmark with the trend particularly marked in funds over £100m.
Daniel Hall, publications and statistics manager at Caps, said: "One of the most striking changes over the past five years has been the increasing use of scheme specific benchmarks.
"Since the end of March 1995, the proportion of funds with such a benchmark has more than doubled, from 23% to 48%. This trend was not confined to the larger funds, the increase occurred quite uniformly across all funds."
Yet the recent survey shows there has been little movement in fund's upping their exposure to overseas equities. In the past pensions funds have been criticised for their lack of overseas exposure due to the fact that they are reluctant to stray far from the mean of their peers or benchmark. Over the past 10 years the proportionate holdings in US equities has fallen significantly to just under a quarter of the March 1990 figure.
UK pension funds achieved double-digit performance for the sixth time in the last 10 years thanks to strong global equity returns in late 1999.
More than half the pension funds in the Caps universe beat their investment benchmark returns in the year to 31 March 2000 while those with scheme specific benchmarks fared even better with 66% beating their benchmark return.
Some 74% of these funds have used the FTSE All-Share index as their UK benchmark and the funds held on average around 51% in UK equities.
Strong performance in overseas equity markets underpinned the strong performances of pension funds by providing the best performance of over the year to 31 March 2000, especially in the fourth quarter of 1999.
Hall said bonds performed poorly by contrast, but property recorded double digit returns and has produced positive market returns over the last seven years, providing performance second only to equities over the medium term in the UK.
At the end of 1999, UK investments accounted for approximately 70% of the average discretionary portfolio but exposure to equities in discretionary portfolios has generally been in decline for the last seven years, following an upward trend that peaked during 1992.
Despite US equities continuing to outperform relative to the average portfolio over 1999/2000, holdings in the sector have remained static.
Hall said "During 1999/2000 there seemed to have been some link between the size of fund and total return over the year because, excluding funds smaller than £25m, funds of smaller size tended to produce better returns. This was explained by relative asset distributions".
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