UK pension schemes are reducing their exposure to equities and upping their allocations to alternatives, according to a survey conducted by consulting firm Mercer.
The report, which is due to be published next week, will show pension funds are increasing their allocation to alternatives to an average 9 percent, up from 6 percent last year. Exposure to equities over the same period of time has decreased to 50 percent from 54 percent. 700 schemes were surveyed.
“This is a move away from the historical pattern of switching from equities to bonds,” Crispin Lace, senior investment consultant at Mercer, told UK newspaper the Financial Times on Monday. “Pension funds are using their equity gains from last year’s market rise to diversify into hedge funds, private equity and property where there are good opportunities.”
In March, the Pension Protection Fund, a six-year-old UK government initiative set up to protect the pensions of workers whose employers have gone out of business, opened up its asset mix to alternatives for the first time.
The fund ring-fenced 20 percent of its £3.9 billion (€4.3 billion; $5.8 billion) in assets under management for alternative asset classes, including private equity, property, infrastructure and absolute return funds. Formerly it had kept a majority of its portfolio invested in bonds, cash and equities, with its only alternative asset holding being a 7.5 percent allocation to real estate.
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