British pension funds are moving toward adopting customized benchmarks and specialized investment management, according to Greenwich Associates.
While adoption of individual benchmarks for managers has not been widespread historically, now one-quarter of U.K. funds are measuring performance against a customized benchmark, while another 15% plan to start using such benchmarks within the next year, Greenwich found.
U.K. funds also are slowly increasing their use of derivatives. Now, 19% are investing directly in derivatives to implement investment decisions, up from 16% last year, while 41% of funds are permitting their managers to use derivatives, up three percentage points.
High allocations to equities appear to have topped out. U.K. pension executives plan to reduce equities to 77.5% by 1996, down from 78.6% in 1993, while fixed income will rise to 9.1% from 7.7%. In addition, allocations to real estate are expected to rise to 7% by 1996 from 6.7% in 1993. That compares with 11% in 1989.
Investment in emerging markets also is on the rise: 35% of funds were invested in these markets last year, up from 31% in 1992, while another 7% are planning to start, Greenwich found.