European Pensions Favor Alternatives

Apr 27 2009 | 2:04am ET

European defined benefit schemes are reducing their reliance on domestic assets and increasing their allocation to non-traditional asset classes, according to a new report.

Mercer’s annual survey of pension funds reveals that schemes in the U.K. favor hedge funds, global tactical asst allocation, and active currency, while other European plans prefer commodities and high-yield bonds. Going forward, the survey suggests that these trends are set to continue with additional allocations to a broader spread of alternatives.
The survey also highlights operational risks coming under greater scrutiny.

“Many active manager appointments were reviewed and not renewed following poor performance in a market that was driven by fear rather than fundamentals,” according to Mercer. “In many cases, counterparty risk and collateral management are high on the agenda for the coming year as more and more schemes include liability-driven investments, stock lending and various derivative strategies within their portfolios.”

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