Almost two-thirds of the UKs medium-sized pension schemes expect to further reduce their investment in UK equities over the next one to three years, according to a survey published by Aon Hewitt today.
The human resources consultancy's Mid-Market Survey found that 59% of UK mid-market pension schemes - those worth between £10m and £500m - expect a further reduction in the amount they invest in UK stocks and shares. Almost 45% of schemes also intend to reduce their allocation to global equities.
Aon Hewitt said the results showed that interest was growing among medium-sized schemes in investment strategies that aim to match scheme liabilities as the uncertain economic climate makes it more attractive for them to de-risk their assets.
Once the preserve of larger pension schemes, these liability-driven investment strategies are now readily available to smaller investors at a sensible fee, and supply has increased accordingly. Two in five of the mid-market schemes questioned said they plan to increase their allocations to 'tailor-made' LDI solutions via LDI funds.
John Belgrove, principal consultant at Aon Hewitt, said: 'Ten years ago, LDI 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.
'In a low yield environment, entry timing remains a challenge but while early adopters have fared well, our research suggests that small and medium-sized pension schemes are now benefiting from the lessons learned by the pioneers of LDI.'
Aon Hewitt also found that 39% of schemes surveyed were interested in increasing their asset allocations to diversified growth funds - which invest in a number of asset classes - or funds with a more 'dynamic capability'.
It also found 34% of mid-market schemes planned to increase their allocations to corporate bonds, while 42% of mid-market UK pension schemes intend to increase their allocations to index-linked government bonds.
Mr Belgrove said the results of the survey were evidence of '3D investment' - de-risking, diversification and dynamism - among medium-sized UK pension schemes.
'This is all the more impressive given the severe headwinds that most pension schemes have been facing and which may have resulted in many concluding that change was too costly or too difficult,' he added.
'Instead, it indicates that most medium-sized schemes remain focused on their longer term goals and are continuing to seek sensible opportunities to de-risk rather than be distracted by short-term market turbulence. There is still a long way to go, but one implication of this is that if yields did rise significantly, then demand for new LDI solutions might explode.'
