nearly 25% of funds changed hands in a year that posted second consecutive fall in returns
Almost a quarter of all UK pension fund managers were replaced during the course of last year, a period which saw returns fall for a second straight year.
The cull of managers seen in the industry is a continuation of the restructuring seen in the UK pension fund market during 2000. Throughout 2001, about a quarter of all pension funds appointed a new fund manager, removed an existing manager or opened or closed a specific pension mandate.
The past year is also the first time in nearly 30 years that the sector has had consecutive negative years, according to a survey from Russell/Mellon Caps.
The last time returns were down for two calendar years was 1973/74, however, Russell/Mellon Caps did find that for UK equities active managers on average outperformed the index.
The Caps Pooled Pension Fund Update reports that the average return for UK pension funds was -9.7% during 2001.
This follows on from 2000 when 24% of schemes made some changes to their investment management arrangements. During 2001 the average actively-managed UK return was -12.6% compared with a return on the FTSE All-Share of -13.3%. But actively-managed overseas equities underperformed on average last year, returning -17.7%, driven by relatively poor performance in US and European equities.
The survey also found that there were wide differences in terms of sector performance during 2001. The basic industries sector saw growth of 7.2%, while the information technology sector saw a return of -66%.
The average proportion that UK pension funds have in UK equities is at its lowest point since 1983/84, according to the Russell/Mellon Caps research. The group found that on average pension funds had around 47.4% in UK equities with about 25% in overseas equities ' the highest exposure to this asset class since the end of the 1980s.
The average proportion that UK pension funds have in US equities is also at a 10-year high at 7.2%.
However, the allocation to European equities continues to be higher than the US with a 2001 figure of 9.9% in UK pension funds. The survey points out that, historically, the average proportion allocation between UK and overseas equities in UK pension funds has been 70% and 30% respectively. It also finds that this changed in 2001 to about 63% and 37% respectively, reflecting the increasing preference for higher overseas equity exposure among UK pension funds.
Within bonds, more emphasis is being placed on UK fixed interest, which now make up more than 80% of bond allocation in UK pension funds compared with under 50% a decade ago.
Also in 2001, the growth in pension schemes adopting their own specific benchmark continued.
At the end of the year, the proportion of schemes with their own benchmark stood at 68%, up from 57% at the start of the year, while at the beginning of 2000 the figure was 45%.
Around 59% of pension funds with their own constructed benchmark managed to beat it during 2001, with the average outperformance being 0.3%. Over three- and five-year periods to the end of 2001, the average outperformance was 0.4% and 0.1% respectively.
The survey also finds a divergence of performance for different equity strategies and styles during last year. Investment in high yielding value equities produced returns of -2.2%, while growth investing for pension funds produced returns of -25.8%.
£300bn of liabilities
View from the front row
Transfer from occupational scheme
Appointed by FCA and PSR boards