So Much For Immunization: Boots Socks Total Bond Allocation

May 27, 2004 ( - Famous for a pension investment portfolio that was entirely concentrated in bonds, United Kingdom (UK) retailer Boots PLC announced plans to shift assets into "other" asset classes.

Trustees for the drug store chain’s pension fund said they would move 15% of the funds’£3 billion in assets into other unidentified asset classes.   However, a Boots’ spokesperson told Dow Jones that the other asset classes could include equities.

The move is a significant turnaround for the company that made international headlines in late 2001 with its decision to divest pension fund assets from equity holdings.   At the time, the company’s then head of corporate finance, John Ralfe , said such a move was necessary to ensure pension payments regardless of movements in the markets (See  Boots Walks Away From UK Equities ).  Ralfe, who now acts as an independent consultant to the pensions industry, said the trustees’ decision increases the riskiness of beneficiaries’ portfolios without any obvious upside.    

Boots paints the move not so much as a move away from the total fixed-income portfolio, but rather as an investment decision based on the fact that there are no bonds with maturities matching the funds’ longest-dated liabilities, some of which won’t come due for 40 years.

Analysts have their doubts of the sudden shift in investment policy, however.   Standard & Poors reacted by cutting its credit rating for Boots from A+ to A-, citing “Boots’ shift to a more aggressive financial policy.”