Pension funds increase focus on risk and volatility
Over four-fifths (83 per cent) of pension funds now have exposure to multi-asset strategies, according to the latest industry poll by Baring Asset Management.
This represents a significant increase from around two-thirds (70 per cent) in the last survey six months ago and 65 per cent in the one conducted a year ago.
Overall, the latest research from Barings found a rise in the numbers of pension funds concerned about volatility and risk: of the managers who had recently changed the asset allocation of their funds, the majority (60 per cent) had done so to reduce volatility while two-fifths (40 per cent) had done so to better match assets to liabilities more effectively. In contrast, only a third (33 per cent) made changes to achieve greater returns.
To mitigate market volatility, over two-fifths (44 per cent) of respondents said that they had better diversified assets, while 42 per cent said they were reviewing investment portfolios more regularly and just over a third (36 per cent) had shifted assets towards multi-asset products.
Andrew Benton, head of international sales and business development at Barings, says: “The overarching theme from this latest study is an increasing awareness of ‘volatility’, and the need to manage that, among pension funds. There are tangible rises in the use of multi-asset strategies and a continuing focus on liabilities as pension funds look to better manage risks. The research found, for instance, that over three quarters of respondents were either very or slightly concerned by the end of quantitative easing.”
The biggest macroeconomic challenge to investment growth over the next six months, as perceived by survey respondents, remains issues regarding European sovereign debt (61 per cent of respondents), with the second biggest concern being levels of US debt (58 per cent) and third, slowing growth in China (47 per cent). Just three per cent thought there was a risk of deflation in the UK – although over a third (34 per cent) saw rising interest rates in the UK as a threat.
Benton says: “It is clear that pension professionals remain intensely focused on managing volatility and risk, particularly with regards to major macroeconomic risks and the economic health of the world’s major trading superpowers – particularly with regards to sovereign debt. While many equity markets made strong gains in 2013, a degree of uncertainty has returned in 2014 and, in this environment, it is not surprising to see mangers diversifying assets and looking to control risks.”
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