(May 10, 2012) — Pension funds on either side of the Atlantic took different approaches to asset allocation as the Eurozone crisis deepened last year, but the outcome was fairly similar, according to consulting firm bFinance.
Investors in North America bought more equities over the year, at the expense of alternatives, the firm said. The United States’ largest pension fund, the California Public Employees’ Retirement System, increased its allocation to equities from 53% to 63% over the year, with Canada’s Caisse de Dépôt et Placement de Québec moving from a 36% allocation to 44%. The funds reduced exposure to alternative assets from 21% to 15% and 32% to 19% respectively.
Across the water in Europe, investors shied away from equity markets, bFinance said. The firm said the Irish National Pension Reserve Fund (NPRF) and the first Swedish buffer fund (AP1) sharply reduced their allocation to equities over the year. The NPRF chose two-year equity put options, which shielded its portfolio from adverse price movements.
bFinance said: “The overall rise in equity allocations in North America in 2011 masked a more complex picture. Funds had to respond nimbly to changing conditions due to the European sovereign debt crisis and fears of a slowdown in emerging markets.”
The firm cited Caisse de Dépôt et Placement du Québec’s President and Chief Executive Officer, Michael Sabia, who said: “Under these excessively volatile market conditions, the Caisse acted quickly by reducing its exposure to equity between the end of June and the end of September 2011 and by maintaining a high level of cash.” The fund’s equity allocation fell to as low as 30% of total assets, before subsequently rebuilding its position in the fourth quarter as systemic risks decreased.
Despite the divergence in investment approaches, large investors performed badly no matter where they were based.
Apart from the Harvard Endowment Fund, none of the world’s largest investors reported investment returns over 10% in 2011, bFinance said, but added that returns reported this year had improved.
Elsewhere, Bloomberg today reported that the Chinese Investment Corporation had stopped buying debt from European nations due to concerns over the region’s solvency and on-going economic issues.