(November 25, 2012) — Dynamic de-risking, using ‘alternative hedging’ assets, and exploring how to exploit the inherent illiquidity in portfolios – these are on most pension fund CIOs’ agenda for the New Year, according to a survey by a leading consultant in the United Kingdom.
A group of 100 CIOs and investment directors from some of the largest pension funds in the UK ranked dynamic de-risking as one of the most pressing actions to take up over the next six months. The approach of putting triggers in place to lock in improved funding levels as they happen found favour with 67 of the 100 pension fund managers responding to a survey by Towers Watson last week.
Second on the “to-do” list was employing alternative hedges to match liabilities as traditional assets have been disappointing and projected returns have looked unlikely to improve. Towers Watson said these alternatives could include listed and unlisted infrastructure and types of secure income investments. Some 51 of the 100 investors said this was something they were keen to action in the next year.
Exploiting the long-term characteristics of their portfolio was next on the list for the investors. Some 43 of the 100 said they would be looking into exploiting the premium that could be earned by holding illiquid assets, such as real estate, infrastructure, and other unlisted assets.
Just over a third said they would look at new investment ideas.
The least number of investors said they would be addressing the structure of their investment boards. Only 16 said they would be reviewing their governance arrangements in the next 12 months.
At the end of October, the average UK corporate scheme was 82.4% funded, according to the lifeboat for bankrupt funds, the Pension Protection Fund (PPF). The organisation said over 81% of these funds were either fully funded – on a buyout basis – or in surplus. The aggregate deficit was over £227 billion.