Bonds are beginning to replace equities in pension funds in the United Kingdom, according to The Financial Times.
Investments in equities have dropped from 60% of investments in defined benefit plans in 2006 to 55% in 2007. Bonds and alternatives have taken their place, with fixed interest assets rising 3% to 29% and alternatives and cash rising 3% to 16%.
This is the shape of things to come, said Ian McKinley at PriceWaterhouseCoopers. There is a slow process of de-risking, gradually taking the equity exposure down to nil. We'll see this pattern almost on an annual basis. You'll see equities being sold down for fixed income or matching type assets or alternatives. In time, the bond assets will start to reduce too in quantum rather than allocation; the reason for that is it will be passed over to pension fund buyout players.
Paul Black, head of investment consulting at Lane Clark & Peacock, said the move toward bonds will continue.
Schemes are starting to mature; more are closing to new members and some to future accrual. This is pushing them to higher allocations to bonds, he said. Also, there is a growing realization from trustees and corporate sponsors of the risk that high equity weightings bring to schemes.