More than 60% of UK pension schemes are likely to increase allocations to alternative asset classes and liability-matching assets over the next 12 months to three years, research by an investment consultancy suggests.
Aon Hewitt says medium-sized pension schemes will move away from equities – particularly UK equities – as the trend towards liability-driven investment (LDI) intensifies.
Aon’s research, published in its Aon Hewitt Mid-Market Survey, covered defined benefit (DB) schemes with between £10 million (€12.5 million) and £500 million – over 60% of the UK pensions landscape.
LDI strategies were once regarded as the preserve of just the largest, most sophisticated pension schemes. However, Aon Hewitt said innovation in product availability among specialist managers had allowed these solutions to become readily accessible to smaller investors at a sensible fee. Supply has stepped up to meet demand.
Some 59% of medium-sized UK pensions schemes anticipate a further reduction in investment allocations to UK equities and almost 45% of the same sample also intends to reduce allocations to global equities.
There is significant interest – 39% - in increasing allocations to diversified growth funds or those with a more dynamic capability.
Greater interest was expressed in increasing allocations to corporate bonds (34%) compared with government bonds (28%).
Two in five mid-market UK pension schemes intend to increase allocations to tailor-made LDI solutions via LDI funds.
John Belgrove, principal consultant at Aon Hewitt, said: “Ten years ago liability-driven investment was in its infancy and regarded as a niche strategy pursued by a few larger and more sophisticated UK pension schemes. It is now an established core strategy, and has become a capability offered by many specialist fund managers.”
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