Survey: UK Schemes Drop Equity Holdings, Focus on Liabilities

A new study by Bluefin Corporate Consulting of defined benefit scheme clients in the UK has found that the main threats to pension scheme funding are widely perceived as being long term interest rates, inflation, and equity performance.

(October 25, 2011) — UK schemes are focusing on equity performance risk despite reducing their allocations to the asset class, according to new research by Bluefin Corporate Consulting.

According to the firm, the average equity holdings among UK schemes total slightly more than 40%, and the firm believes this percentage may soon drop further. The firm noted the main threats to pension scheme funding were perceived (almost equally) as being equity performance, long term interest rates, and inflation, reflecting a growing recognition of the importance of liabilities in comparison.

The survey — titled “Taking your pension pulse – Do you pass the test?” — aimed to determine what controls and tools trustees had in place to help them weather difficult market environments. “Some multi million pound funds still have no mechanism to monitor and react to violent movements in assets or liability values outside of the valuation and annual update process,” the survey noted.

Commenting on the results of the research, Bluefin consultant Adrian Chapman said: “The most surprising result of the survey was that some large funds told us they had no mechanisms to monitor and react to violent movements in assets or liability values outside the valuation and annual update process…In addition, since this survey was carried out in June, we believe that since then the average equity holding may have fallen as low as 35%.”

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The majority of meetings for the research took place in June 2011 and covered 45 schemes.

The survey by Bluefin revealing declining allocations to equities among UK schemes contrasts with a recent quarterly survey by Northern Trust that revealed institutional investment managers in the US actually see value in the US equity market, despite pessimism about the economy.

The study showed that the European debt crisis is perceived to be the biggest risk to equity markets in the next six months. A total of 63% of managers anticipate the European debt crisis will spill over to other areas of the market. Furthermore, the study showed that while 39% of managers expect corporate earnings to decline in the fourth quarter of 2011 compared to 15% last quarter, 36% of managers expect US GDP growth to decelerate over the next six months, up from 21% in the second quarter. Northern Trust also revealed that investors are holding onto cash, with 23% holding a higher-than-normal level of cash in the third quarter, up from 12% in the previous quarter.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Companies worldwide are continuing to shift their investor relations strategies to expand outreach to sovereign wealth funds and emerging markets, according to an annual survey conducted by BNY Mellon.

(October 25, 2011) — Companies are focusing more on sovereign wealth funds and emerging market investors, a new survey by BNY Mellon Investor Relations reveals.

What do sovereign wealth fund and emerging market investors have to offer?

“There is a scarcity of capital in the market today, and companies are being more creative with respect to how they’re targeting new investors,” Guy Gresham, New York head of the Global Investor Relations Advisory team at BNY Mellon, told aiCIO in a telephone interview. “Another global trend is that investor relation teams are becoming more global in their approach, so naturally sovereign wealth fund and emerging market investors factor into a global approach,” adding that due to their longer-term investing horizon, sovereign wealth funds have been a helpful source for companies to raise capital, while also serving as a source of stability during market fluctuations.

“Our clients have targeted emerging market investors because they’re supportive of strategic objectives to generate revenue and build operations in emerging markets,,” Gresham said, noting that local investors based in such markets serve to support brand awareness.

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According to BNY Mellon’s latest research, 59% of surveyed firms meet with SWFs. The study noted that by a wide margin, the most frequently engaged wealth funds are based in Singapore, Norway and Abu Dhabi. Western European companies are the most likely to meet (69%) or consider meeting (24%) with SWFs, while North American firms are least likely to engage sovereign wealth funds (42%).

Meanwhile, 40% strategically target investors in emerging markets, up from 36% last year.

Additionally, the survey found that a total of 74% of all firms believe greater regulatory oversight is needed for trading mechanisms such as ‘dark pools,’ short-selling, and high-frequency trading. The sentiment is strongest among US companies (89%) versus non-U.S. firms (70%).

“With continued uncertainty in the global markets, it remains critically important for companies to maintain a robust investor relations program and understand how best to focus their efforts,” said Gresham in a statement.

Michael Cole-Fontayn, CEO of BNY Mellon’s Depositary Receipts business, added in the release by the firm: “Companies are adapting to new global market realities and taking a strategic approach to sovereign wealth, as well as growing investor pools from China to India to Brazil, as they seek to better position their firms in higher-growth regions of the world…We see this trend only strengthening and are developing new products that offer greater visibility and access to the global capital markets for forward-thinking firms.”

The survey was conducted through July and August 2011 and featured input from 650 companies across 53 countries, with respondents covering financials, industrials, consumer, technology and healthcare, among other market cap and sectors.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742