LONDON — Eight of 10 U.K. pension funds are on the verge of making drastic changes to their asset allocations, and potentially to their manager rosters, according to a new Greenwich Associates survey.
Fixed-income and alternative investments such as hedge funds, private equity and real estate are expected to increase, at the expense of equities, both domestic and international. To implement the changes, pension funds are expected to hire new managers at a rapid pace.
"This phenomena is worldwide," said Christopher McNickle, a managing director of the Greenwich, Conn.-based firm. "It's just happening at a more intense pace in the U.K. because the regulatory environment there has changed more dramatically."
Mark-to-market accounting rules highlighted U.K. pension deficits while requiring plan sponsors to adopt a more stabilized investment approach, Mr. McNickle and U.K. consultants said. Therefore, demand for bonds strategies skyrocketed.
At the same time, global interest rates remained relatively low while higher demand for bonds helped to flatten the yield curve, making it expensive to turn to fixed-income strategies as a way to dampen volatility. Diversification became a way of balancing return patterns while retaining earnings potential.