Pension funds continue to allocate to equities

Slow decision-making is the greatest challenge facing pension funds, according to over a third of pension fund managers and others polled in a recent survey* by Mercer. A close second (26%) was maintaining faith in growth assets to help deliver the pension promise to scheme members.

The majority (83%) believed the current trustee governance model is out of date, with 45% saying it could be improved by delegating some decision-making externally.

"Traditional governance structures can slow down a pension fund's response to market changes and result in considerable losses. A more dynamic governance model which might involve delegation of some decision making and implementation responsibility is emerging as a more practical solution for some clients," said Tom Geraghty, European head of Mercer's investment consulting.

A majority or those polled are considering (52%) or already using (27%) de-risking techniques such as liability-driven investment to help reduce overall fund risk. Investment strategies and governance structures should be assessed on an ongoing basis to get the best performance from the portfolio, noted Geraghty.

The survey also found an overwhelming majority of respondents (70%) thought pension fund investing is a longer-term consideration despite the shorter-term metrics that pervaded the industry in recent years.

On the issue of active management, 27% said their allocations to active management would be reduced. A further 37% said they would increase their allocations but only if fee terms rewarded actual, not expected, out performance.

Despite the move towards de-risking of portfolios respondents said the best investment opportunities will come from public equities (24%), corporate bonds (22%), commodities (14%) and property and hedge funds (both 10%).

Mercer is a global provider of consulting, outsourcing and investment services.

* The survey was of 240 attendees at Mercer's recent European Investment Forum. Attendees at the forum, held in Dublin on May 13-14, included pension fund representatives, investment managers and consultants.