European pension funds are focused on reducing the risk profiles of their portfolios in order to improve funding levels, according to Greenwich Associates’ 2007 Continental European Investment Management Study. More than 30% of all continental European institutions are using some form of asset-liability matching strategy, according to the study of 217 pension funds with a combined €1.2 trillion ($1.8 trillion) in assets under management. About 28% of respondents use absolute-return strategies for at least a portion of their total investment portfolios, while 20% have implemented hedging strategies to manage specific risks such as interest, inflation and foreign currency exposure.
The average funding ratio of continental European pension funds was 118% in 2007 compared with 93% in 2003, the study found.
Compared with their U.K. counterparts, which were not included in the survey, continental European institutions might have lost out on as much as €15 billion in annual investment returns because of their less risky investment approaches, according to the study. Overall, European funds’ equity allocations were unchanged from a year ago at 26% of total assets. Fixed-income allocations dropped to 55% from 57%, with the difference going toward alternative investments, particularly commodities.
