UBS Global Asset Management has published its 2007 Pension Fund Indicators report, which provides an annual snapshot of the state of pension fund investment in the UK with the aim of putting current topics in their long-term context.
“As pension funds cast their nets ever wider to capture returns and manage risk, new asset classes and investment sectors become pertinent,” says Matthew Stemp, head of UBS’s asset management business in the UK. “It is essential that trustees understand the risks and potential rewards of these opportunities before committing and keep the necessary focus on their long-term objectives.”
Some key conclusions from the report include:
Current thinking in UK pensions
Pension assets as a whole will continue to grow rapidly UBS estimates that total UK pension assets stood at 1.58 trillion at end 2006 and will increase to over 2 trillion in 10 years time.
There is increasing appetite for pension buyouts which UBS predicts will rapidly become a mainstream reality.
The UK in a global context
Things could be worse, but as a nation there is still much for the UK to address to secure the retirement incomes of future generations.
There is a clear trend towards greater international investment in all major pension markets. In the UK, for example, the average pension fund’s overseas equity weighting now equals its UK equity weighting at 32 percent for the first time ever.
Asset allocation in the presence of liabilities
A “perfect storm” has led to the renewed focus on liabilities.
The key metric for pension funds is funding ratio risk which provides a guide to the uncertainty of the sponsor’s pension costs.
There are contrasting, yet complementary, roles for liability driven and return generating investment strategies.