UK Pension Money Managers in Flight to Safety Out of Equities

September 14, 2005 ( - UK pension fund investment managers pulled 20 billion pounds ($36 billion) out of stocks between 2002 and 2004 and poured the assets into fixed income opportunities, new research shows.

British pension funds, with about 1 trillion pounds of assets, cut their average stock allocation to 58% in April 2004 from 60% two years before, said Aon’s chief actuary, Donald Duval, Bloomberg reported.   In the US, pension funds increased their equity commitments to 62% from 59%, he said.

The change is party due to the closure of some UK pension funds to new members, which would lead them to move to safer bond investments. UK pension funds also traditionally had a higher equity allocation than those in the US, and the three-year bear market that started in 2000 may have reduced that.

“The risk of equities came home to people,” Duval said in an interview with Bloomberg.

Because UK companies tend to have pension funds that are proportionately larger than those in the US, a drop in stock markets will affect their share price more, Duval said. A 25% decline in company pension assets would reduce a UK company’s share price by about 7%, compared with a 4% cut in the US, he said.

Meanwhile, in a separate report, WM Performance Services said UK pension fund returns surged to 5.1% in the second quarter, bringing first-half returns for 2005 to 7%. North American equity produced a return of 7.7% in sterling terms, due mainly to dollar appreciation, while UK and continental Europe posted returns of 4.7%, according to WM’s quarterly pension fund survey figures.

The best performing equities were Pacific Rim, which returned 9.6%, in sharp contrast to Japan’s 2.2% for the quarter. Bonds produced over 5% and property was slightly under 5%.