Weak returns for 2000 mean pensions are being managed with short-term focus
Pension funds are being managed with a focus on the short term as expectations for the high returns seen in the 1980s and 1990s are seen as unrealistic, according to Phillips & Drew.
The past year has seen a decrease in the value of the assets of UK occupational pension funds, from £777bn in 1999 to £755bn in 2000, reflecting the weak returns for the average pension scheme in 2000.
Andrew Maclaren, head of asset allocation at Phillips & Drew, said pension fund assets have grown in real terms by an average of about 7% a year since the end of 1963. Most schemes have reached maturity and pension fund assets per scheme member, both active and retired, now average £60,000.
'However, assets per member will need to rise further from this level to cover increasing earnings, the likelihood of lower long term real returns from most asset classes and increasing life expectancy,' he said.
Maclaren predicted that future returns will not match those that fund managers got used to in the 80s and 90s, noting they could be less than half what they were for the last 10-year period despite the increase in equity-based investments. The proportion of pension funds allocated to equities rose from below half in 1962 to over 80% in 1993, according to Phillips & Drew. A large proportion of this increase was made up of overseas equities whose weightings rose with the abolition of exchange controls in 1979.
The latest figures from Phillips & Drew show that pension funds ownership of UK equities has been falling recently. Ownership peaked in 1989 at 30% while they were 20% at the end of 1999.
This is because pension funds have been net sellers of UK equities while the market as a whole has been expanding through new issuance, according to Maclaren.
This means that pension funds will have less influence over determining company policy, which Maclaren argued could mean that they will not be as effective in ensuring that they have a long-term perspective.
He said: 'Pension funds are starting to be run with a more short-term perspective, accord-ing to Caps, with 23% of funds choosing a new manager in 2000, having fired an existing one or closed a specific contract. This is up from 14% in 1998.'
View from the front row
Project Libra unveiled
Including SJP and investment trusts
Spent two years at Sanlam
Will also assess FCA's actions