Pension funds switch to bonds

Monday, 07 July 2008 12:00

Pension funds are increasingly switching to the stability of bonds.

Nearly half of final salary pension schemes have moved from equities to bonds in the last 12 months – as volatility in the stock markets becomes the only steady certainty.

Research by Aon Consulting reveals 23 per cent of schemes have made a substantial move from equities to bonds.

Furthermore the same number of the 100 defined benefit pensions managers polled had made a smaller shift to bonds.

However, 54 per cent of pension scheme made no change to their investment strategy.

Property maintains it position as a popular asset class – with 44 per cent of schemes holding some property.

“It’s no surprise, as pension schemes mature and trustees become increasingly risk aware, nearly half have moved some part of their growth portfolio into matching assets,” said Daniel Peters, investment consultant at Aon.

“To reduce volatility further, growth assets require diversification away from equities.”

He added alternative assets, such as funds of hedge funds, could be used to target a similar level of return to equities but with lower volatility.

“Initial indications show that during the credit crunch and the subsequent fall out already seen during 2008, volatility of these funds is considerably reduced compared to the traditional equity-only strategies,” he concluded.

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