If UK pension funds had allocated the same amount to alternative investment as their American counterparts, according to Guy Fraser-Sampson of Mowbray Capital, a venture capital fund of funds, the funding crisis could have been avoided.
According to reports from Dow Jones, Fraser-Sampson – speaking at the National Association of Pension Funds investment conference in Scotland – suggested that investments in alternative investments, especially venture capital, could have saved many final salary plans.
“Underfunding today is a direct result of dreadful asset allocation decisions by UK pension funds over the last decade or more,” Fraser-Sampson reportedly said.
He suggested that if allocations had been around 20% in European venture capital after 1993, returns would have been around 13.4%, significantly higher than the 6% seen. This would have made plans 98% funded, instead of 50%, according to Fraser-Sampson. He suggested that going forward, UK pension funds, if they want to see returns that do more than keep the fund at the status quo, should allocate more to alternative asset classes, specifically private equity.