Bond Allocations Hit Record High Despite Low Yields

UK pensions hiked their exposure to fixed income last year in the face of low—and in some cases negative—yields.

Bond allocations reached a record high last year among the pensions attached the UK’s biggest companies, research has shown.

FTSE 100 company pensions had a combined exposure of £315 billion ($448 billion) to fixed income at the end of the third quarter of 2015, according to consultants JLT Employee Benefits. This marked a £25 billion increase over the previous 12 months, and a rise in the average bond allocation to 59%.

“There is still a long way to go before the very significant risks still being run in pension schemes will cease to worry shareholders and members.”While returns from the asset class made up the bulk of the increase, JLT noted that the aggregate deficit across FTSE 100 pensions rose by more than 10% in the same period, as total liabilities rose by £23 billion to £614 billion.

“Despite some market commentators warning about bond overvaluation, the fact that pension bond holdings are at historical highs doesn’t seem to evidence it,” said Charles Cowling, director at JLT. However, the restricted upside for much of the fixed-income market is likely to “put more pressure on companies to fund pension scheme deficits through cash contributions,” he added.

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Fathom Consulting and Pensions Insurance Corporation argued in a report published earlier this year that a higher equity allocation could be a better way to close funding gaps and de-risk, due to the current dynamics of the government bond markets.

Cowling, however, said higher bond exposure was “very positive” if it reflected “greater prudence” from pension trustees and investors.

“Some pension schemes’ allocations to equities are surprisingly high, although the information publicly available in their accounts does not reveal the rationale for their investment strategies,” Cowling added. “While it is good to see evidence of pension schemes reducing investment risk, there is still a long way to go before the very significant risks still being run in pension schemes will cease to worry shareholders and members alike.”

Almost all FTSE 100-listed companies have closed their defined benefit pensions to new members, and many are closed to existing members. Chemicals specialist Johnson Matthey and drinks company Diageo are believed to be the only two companies still accepting new employees into their pensions schemes, according to CIO research.

Last year, UK consultant firm Spence Johnson estimated that just £117 billion would be available for asset managers outside of the fixed income and liability-driven investment sectors.

Home > News > Newsmakers > Northern Trust Bolsters $60B OCIO Unit

Newsmakers April 10, 2016

Northern Trust Bolsters $60B OCIO Unit

Jessica Hart, a multi-manager investing expert, has been tapped to lead Northern Trust’s outsourced retirement assets.

Northern Trust Asset Management has added three new hires to its outsourced-CIO (OCIO) business, strengthening its family office, retirement, and endowments and foundations services.

Jessica Hart, who led global fund construction for Northern Trust’s multi-manager investments unit, has been named as retirement practice lead. She will succeed John McCareins, who was recently appointed asset management lead in the Asia-Pacific region.

In her new role, Hart will lead a team that manages $60 billion in global multi-asset programs for both defined benefit and defined contribution plans, the firm announced.

The firm also named Lincoln Ellis, a 20-year veteran in family office investing, as senior CIO for the global family office practice. Dan Kutliroff, most recently director of OCIO sales in the Midwest for Mercer Investments, was also hired as senior sales specialist in the OCIO’s retirement practice.

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“Lincoln Ellis and Dan Kutliroff bring expertise in developing investment solutions for family offices and corporate plan sponsors, while Jessica Hart’s close collaboration with the retirement team on portfolio design, manager research, and client service will ensure a seamless transition for clients,” Joseph McInerney, head of Northern Trust’s multi-manager solutions, said.

According to CIO’s 2016 OCIO Buyer’s Guide, Northern Trust’s OCIO arm had $56.1 billion in full discretionary assets and 77 clients as of January 28, 2016. The unit is run by 53 portfolio managers and 79 relationship managers.

The firm also revealed it won 11 new outsourcing clients in 2015, and three in the first quarter of 2016.

Hart joined Northern Trust in 2000, and worked in a variety of senior positions in the multi-manager solutions group, most recently heading up manager research and fund management and leading at team of 15. She also serves as co-manager of nine multi-manager mutual funds.

She previously built up her expertise in the financial and commodities risk consulting group at Arthur Andersen (now Accenture) and has an MBA from New York University’s Stern School of Business.

Ellis most recently founded a consulting and asset management group Astor Janssen Holdings, and also spent eight years at Morgan Stanley. Kutliroff has more than 20 years of experience as an advisor to corporate retirement plans.

Last June, Northern Trust also nabbed Bei Saville, former head of alternatives at the $5.7 billion Helmsley Charitable Trust, to manage endowments and foundations clients.

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