De-risking of UK pension funds paid off, says State Street
07 January 2013 London
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Initial estimates for the WM UK Defined Benefit Pension Fund Universe and the WM UK Charity Fund Universe suggest a strong year for both sectors in terms of asset performance, said State Street’s investment analytics division.
“We expect the headline industry average returns to be in the region of 8 percent for pension funds and 11 percent for charity funds. Reversing the outcome of the previous year, funds that have retained significant real asset exposures will have fared best,” said the firm.
“Whilst positive asset returns are very welcome, trustees and fund sponsors remain challenged with ultra-low bond yields continuing to weigh on the liability side of the balance sheet,” said Jeanette Patrizio, senior vice president of State Street Investment Analytics.
The firm pointed to the importance of UK equities, stating that they gained 13 percent over the year, outperforming the benchmark FTSE All Share index for a second consecutive year.
International equities, which represent 25 percent of the average fund’s assets, delivered 12 percent in aggregate but, regionally, results varied. European equities were the best performer over the year at 18 percent, whilst, in contrast, returning under 5 percent was Japan.
“The vast majority of defined benefit pension funds and charitable funds are run against strategic asset allocations designed to meet specific long-term investment risk and return criteria,” added the firm.
“Pension funds that have a long time horizon, strong employer covenant or remain open to future accruals performed very well over the year, as should most charity funds.”
“We expect the headline industry average returns to be in the region of 8 percent for pension funds and 11 percent for charity funds. Reversing the outcome of the previous year, funds that have retained significant real asset exposures will have fared best,” said the firm.
“Whilst positive asset returns are very welcome, trustees and fund sponsors remain challenged with ultra-low bond yields continuing to weigh on the liability side of the balance sheet,” said Jeanette Patrizio, senior vice president of State Street Investment Analytics.
The firm pointed to the importance of UK equities, stating that they gained 13 percent over the year, outperforming the benchmark FTSE All Share index for a second consecutive year.
International equities, which represent 25 percent of the average fund’s assets, delivered 12 percent in aggregate but, regionally, results varied. European equities were the best performer over the year at 18 percent, whilst, in contrast, returning under 5 percent was Japan.
“The vast majority of defined benefit pension funds and charitable funds are run against strategic asset allocations designed to meet specific long-term investment risk and return criteria,” added the firm.
“Pension funds that have a long time horizon, strong employer covenant or remain open to future accruals performed very well over the year, as should most charity funds.”
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