Executives at global money managers and pension funds are adjusting their exposure to U.K. assets and to sterling, as election fever and the uncertainty it brings begin to take hold.
On May 7, U.K. voters will decide — at least to some extent — which political party or parties will run the country for the next five years.
While every election carries an element of uncertainty, this time that uncertainty is more pronounced, with seven parties vying for power. As Pensions & Investments went to press, the Labour Party had edged ahead of U.K. Prime Minister David Cameron and his Conservative Party.
However, money managers and pension fund officials said the outcome of this election is too close to call, beyond the consensus that a hung Parliament is likely, with no single political party expected to gain the majority of seats required to form a government. Forming a coalition government can be a long and messy process.
That uncertainty means some investors have been trimming their exposures to U.K. equities and U.K. currency.
“We are more concerned about the uncertainty the election brings than the election per se,” said Peter Wallach, head of the £5.8 billion ($8.7 billion) Merseyside Pension Fund, Liverpool, England. “We have unwound some of our currency hedging positions — simply because things are even less predictable than ever. Quite a few commentators say that elections are irrelevant to markets and I would agree that in the long term they are. However, there is more uncertainty about outcome this time — hence our caution.”
The £10 billion Santander (U.K.) Common Investment Fund, Manchester, recently dropped its public equity allocation to 20%, said Antony Barker, director of pensions at Santander U.K. PLC. At year-end 2014, the fund had a 22% allocation to equities, according to the firm's annual report. “With elections (on) both sides of the Atlantic and continuing European issues, we just see better value elsewhere in private markets and bilateral deals,” Mr. Barker said.
A number of money managers also have decided to adjust exposure.