Nearly one in three pension schemes have reduced their exposure to equities in the last year, according to the National Association of Pension Funds (NAPF).
Results from the second part of NAPF’s annual survey, released this week, show 30% of the members questioned, had reduced the proportion of equity investment in their portfolio over the past 12 months, while 25% had increased their bond holdings.
Other findings from the second section of the survey, which focuses on investment, revealed 73% of the 350 members running defined benefit (DB) schemes believe their funding level exceeds 100% on a Minimum Funding Requirement (MFR) basis.
In addition, the research shows public sector schemes are mire likely to have exposure to equity markets and less to bond markets, compared to those run by the private sector.
Overall, the survey claims the average investment in equities in pension funds is 63%, compared to just 29% in Bonds. But, according to the results, schemes have also increased their investment in property and alternatives such as hedge funds and commodities.
Looking at other assets in the investment portfolios of the schemes questioned, including some that are closed to new members, 50% invest in property, 15% in private equity or venture capital, 51% in cash deposit accounts and 8% invest in hedge funds.
The survey also revealed 14% of schemes invest all their resources in assets that track market indices, while just under half of all DB schemes use derivatives as part of their portfolio management.
Christine Farnish, chief executive of NAPF, says these findings add to the growing body of evidence that pension funds are becoming more risk-averse in their investment patterns.
She points out there are a variety of factors at work here, including greater longevity, lower interest rates, new accounting standards and a tighter regulatory regime.
“This combination of developments is leading UK pension funds to steer away from traditionally higher risk investments, like equities, and towards “safer” options in order to match their liabilities more effectively,” says Farnish.
She continues: “These and other data point to the conclusion that changes to investment patterns have been driven more by liability matching than by an expectation of generating high returns.”
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