Strathclyde Pension Fund, Glasgow, Scotland, is considering a reduced equity exposure in favor of a more diversified investment portfolio.
The £14.9 billion ($22.2 billion) pension fund has a current equities allocation of 72.5%.
With a view toward increasing the likelihood of meeting a 110% funding objective, the pension fund has been looking at diversifying out of equities.
Investment consultant Hymans Robertson has proposed a risk-based asset framework to introduce diversification, according to recently released investment committee minutes. The analysis, which outlines four options for diversification, said a reduction in equities would produce a more efficient risk/reward strategy, marginally improve the confidence in achieving the funding target, and “provide a more meaningful improvement in the short- and long-term downside risk.”
The four options would reduce equities to 62.5%, 55.5%, 45.5% and 32.5%. Each of the four scenarios would increase the allocation to credit to 5% from the current 3%, and reduce hedging and insurance allocations each to 2.5% from 4.5%.
Allocations would increase, to varying degrees, to short- and long-term enhanced yield investments, including absolute return, real estate debt, and timber. Each alternative would also reduce return assumptions and volatility.
“Implementation should begin at an early date and should be progressed as quickly as opportunities, market conditions and other practicalities allow,” the minutes said.
A spokeswoman for the pension fund could not be reached for comment by press time.