Property Sector Most Popular Diversification Strategy for UK Pension Funds

March 26, 2007 ( - Thirty percent of UK pension funds reallocated more than 5% of their investment portfolio in 2006, with the property sector coming out as the most popular way for funds to diversify their assets, according to research by Aon Consulting.

The research showed that these funds were seeking greater portfolio diversity and risk-controlled investment strategies, with 14% of the 150 companies surveyed opting to diversify over the past year to avoid being exposed to a single volatile asset class, according to a press release  on the survey.  Half of UK schemes studied by Aon diversified their growth assets using property, 17% used hedge funds and 11% used global tactical asset allocation.  

Other findings by Aon include:

  • 11% of employers say their schemes have adopted some form of Liability Driven Investment (LDI) strategy over the past 12 months.
  • 17% of schemes are using contingent assets for scheme funding with another 20% considering using such assets.
  • Parent companies and/or group guarantees are the most popular form of contingent funding being implemented (17%) or considered (20%), with escrow accounts (1%/ 19%), charge over assets (2%/ 14%) and letters of credit (2%/12%) being the next most popular considerations.

“While such assets do not generally remove risk from the employer, they can help to manage the volatility and should make trustees more relaxed about any short-term investment underperformance,” said Paul McGlone, principal and senior actuary at Aon, said in a news release.