Investing November 4, 2002

UK Pension Funds Moving Toward Diversification

November 4, 2002 (PLANSPONSOR.com) - British pension funds are invested less in domestic equities in 2002 than they were in 2001, according to Greenwich Associates.

Reported by

Eric Hazard

Total fund assets in domestic equities in 2002 have slipped to 43% from 47% in 2001. Fixed interests assets have gained 23% in 2002, up from 21% in 2001.

With the shift toward diversification has come an increase in the use of specialty managers, 2002 has seen 89% of funds using specialty managers in comparison to 41% in 1998. Also, the average number of managers used per fund has increased to 4.2 up from 2 or 3 in 1997.

Defined contribution plans are also up in the United Kingdom. Nearly half of all UK corporations now offer DC plans, up form one-third just two years ago. These plans currently handle 7% of all assets, but that number is projected to increase to 21% in the next 10 years, according to Greenwich.

UK fund officials have shown concern over a new accounting standard, FRS 17, which requires funds to match liabilities with assets every year in their financial statements to avoid shortfalls. Nineteen percent of funds named FRS 17 the biggest factor influencing strategy.

The study was conducted in April and May of 2002, by Greenwich, Connecticut based Greenwich Associates which conducted interviews with 390 professionals at the largest tax-exempt funds in the United Kingdom.