New strategies for European funds

Following last year’s unprecedented market conditions, European pension schemes are increasing their allocation to non-traditional asset classes to manage their risks more effectively. Mercer’s annual European Asset Allocation Survey of over 1,000 European pension funds with assets of €400bn found that 35% of UK schemes and 60% of European schemes (excluding the UK) expect to introduce new investment opportunities into their portfolio to help manage future investment risk.

Tom Geraghty, European head of Mercer’s investment consulting business, commented: ‘European pension funds have all felt the effect of the last year’s market turmoil. The banking crisis and collapse of Lehman Brothers highlighted the operational risks associated with the investment of institutional assets and brought counterparty credit risks more into focus. Funds are now looking at ways to manage the risk inherent in their schemes, mainly through further diversification of their assets.’

Last year’s market turbulence has not only resulted in funds’ move from equities to bonds. It has also produced reviews of all aspects of pension scheme policy with operational risks coming under greater scrutiny. Governance structures continue to be strengthened.