The next year is expected to see UK pension schemes continue to move their asset allocations away from equities and towards bonds and alternatives, according to research published by Aon Hewitt today.
The consultancy's Global pension risk survey found that 41% of UK pension schemes plan to reduce their exposure to UK equities over the next 12 months, and 28% plan to reduce their investment in global equities.
At the same time, one third of schemes surveyed are planning to increase the exposure to alternative asset classes. The move away from equities is particularly marked among larger schemes - those with over £1bn of assets - where 37% expect to increase their allocation to bonds in the next 12 months. Nearly half of these larger schemes also plan to grow their alternative asset holdings.
John Belgrove, senior partner in Aon Hewitt's investment consulting team, said: 'The results of the survey provide more evidence of a structural shift in the UK pensions industry's view of equities as the main source of portfolio growth.
'Despite an equity performance recovery of around 70% from the low point of 2009, pension schemes continue to display a desire to move away from the asset class. While equities will continue to play an important role in scheme portfolios, the focus for the future is on risk management through hedging and diversification. The "cult of the equity" is history for defined benefit schemes.'
Belgrove noted, however, that schemes still faced a 'challenging' investment environment, while low gilt yields mean they also had to cope with rising liabilities.
'As the battle for deficit reduction intensifies, what we have seen is a growing focus on developing more sophisticated asset management strategies that aim to provide equity-like growth potential with bond-like volatility,' he said.
Aon Benfield linked the governance challenges offered up by more innovative investment strategies to the increased use of delegation by schemes. This was particularly the case with smaller schemes, where 20% of those with under £100m of assets have already implemented full delegation of their investment policy to third party specialists.
Most commonly, schemes outsource asset manager monitoring, with almost 50% of respondents having already made this move or being very likely to do so.