04/01/2011
By Laura Blows
A report from Pyramis Global Advisors has found that executing timely asset allocation changes in response to changing market conditions is considered the largest challenge for the decade ahead by European and US pension plans.
The 2010 Pyramis Global Defined Benefit Survey questioned defined benefit (DB) plans from 13 countries the UK, Northern Europe, the US and Canada. The research represents global pension schemes that hold more than $2.0 trillion USD in assets - about 12% of total global pension assets.
It found that 44% of Swiss, 38% of UK, 36% of Nordic and 28% of US public plans considered the largest challenge for the decade will be executing timely asset allocation changes in response to changing market conditions. The top challenge for plans in the Netherlands was tracking aggregate portfolio risk, while matching assets and liabilities was the top challenge among US corporate and Canadian plans.
While controlling total plan costs is a challenge for US corporate, US public, and Canadian plans, it was not rated a challenge for European plans.
In the UK, the most notable expected asset allocation increase was in emerging markets equity, which 60% of respondents selected. The largest expected decrease was in UK equity investments. Among Nordic respondents, 57% expect to increase emerging markets debt while the largest decrease was expected in cash allocations followed closely by Nordic equity.
European, Canadian and US public DB plans all expressed a strong conviction that active management will deliver alpha over the long term, while a comparatively lower percentage of US corporate plans agreed with the statement.
The report also showed that DB plan sponsors from the regions surveyed differed in their view of what the predominant portfolio allocation of DB pension funds will be in 10 years’ time.
It found that 57% of US public plans, 38% of Swiss respondents and 33% of UK schemes expected a substantial shift to global investments - both fixed income and equity. However 33% of Swiss funds and 34% of funds in the Netherlands expect the traditional 60% equity, 40% fixed income portfolio allocation to prevail.
Thirty per cent of UK schemes also indicated strong belief that allocations would shift to fixed income or immunised strategies, such as LDI, which was the top response among US corporate and Canadian DB plans. Nordic funds most commonly indicated a shift to alternative asset classes.
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