THE EUROZONE crisis has forced pension funds out of risky equity markets, an industry study showed yesterday, but the funds are also trying to avoid safe haven bonds because of the low yields on offer.

The established options and ‘counter measures’ against poor economic data for investors (of all shapes and sizes), is no longer as clear cut as it once was with many now venturing into the world of alternatives and taking up sizeable positions. As this article goes on to explain.

Funds are being pushed towards alternative assets and emerging markets, according to Mercer’s asset allocation survey, as they try to maintain long-term returns for investors.

Of the 1,200 funds studied across Europe, 21.4 per cent of non-British funds plan to decrease their investments in domestic equities, while just four per cent forecast an increase.

At the same time bond investments held steady as funds adopt a “wait and see” approach to the market.

Meanwhile 50 per cent now hold some alternative investments, up from 40 per cent a year ago.

The most popular “alternatives” include hedge funds, emerging market debt and high yield bonds, with almost 20 per cent of European schemes having allocations to one or more of these areas. Larger funds are particularly keen in these areas – 60 per cent of schemes with over €2.5bn in assets have alternative allocations, up from 40 per cent in 2011.

“As the Eurozone crisis continues unabated, pension funds are faced with the dual challenge of managing portfolio risk brought on by market volatility, while at the same time identifying opportunities that will generate returns to support future liabilities,” said Mercer’s Nick Sykes.

“Liquid asset classes are also favoured, as investors value access to their assets in such turbulent times,” he added.

Original Article : City A.M.

Tuesday 29th May 2012
TIM WALLACE