A significant reduction of equity exposure in pension funds is further proof of declining global confidence, research suggests.
A poll of UK pension schemes by Baring Asset Management (Barings) shows funds have reduced their equity allocations from 70.8% to 63.9% in the last 12 months.
In addition, the study reveals a dramatic shift of allocation of pension fund assets to hedge funds, from a figure of 17% in 2006 to 47.8% this year.
However, the average proportion of a scheme’s total assets allocated to hedge funds is still relatively low at 3.7%, up from 3.4% last year.
Finally, the study reveals that emerging Asia is considered to be the region with the biggest potential for equity gains over the next ten years.
Korea has overtaken China as the country viewed as having the most investment potential over the next 12 months. Barings says, interestingly, Hong Kong is viewed as the second most likely to outperform in the next 12 months, followed closely by China.
Marino Valensise, chief investment officer at Barings, says: “This year’s study has revealed some very interesting findings.
“Schemes are clearly aware of the opportunities that exist in emerging markets and are more open to the options that are available to them in the alternatives space.
“In our view, Asia still offers UK pension funds the best growth potential for the long term, and we believe that many schemes still have too little invested in Asian equities.
“Indeed over the past year, Asia has been a potent MSCI region and this performance looks set to continue.
“We suggest that schemes start to place greater emphasis on exploiting the scope for excess returns through actively managed strategies as the region is re-rated.
“What happens in Asia over the next five years will have a dramatic impact on world markets but it is the domestic Asian story that presents the most exciting opportunities for investors.”
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