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Pensions Worry More about Inflation, Less about Interest Rates

A new survey shows that UK funds more focused on hedging their liabilities against inflation than they were earlier in the year.

(November 5, 2009) – Pension funds increasingly are looking to hedge against possible inflation—at least in England.


United Kingdom pension funds hedged more than $15 billion in inflation liabilities from July through September, according to a survey of derivative trading desks conducted by F&C. This indicates an increasing concern about rising inflation following huge injections of liquidity into global markets, moves that have caused fierce partisan divides in both America and Britain.

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According to the study, pension funds were quiet on this front in the first two quarters of 2009 before moving rapidly and en masse in Q3. Data show that, while hedging against inflation fell in this quarter, inflation hedges increased. Overall, the study estimates that actual liabilities hedged against interest rate increases fell by about a third in Q3.


Alex Soulsby, a derivatives manager at F&C, claimed that the decline in interest rate hedging was a direct result of pension funds feeling that hedging against interest rates at current rates will not garner value, according to IPE.



To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>
Home > News > Regulation > City of London, Others Look to Increased Oversight and Allocation Changes
Regulation

City of London, Others Look to Increased Oversight and Allocation Changes

 

Following a poor 2008, the City of London defined benefit pension plan is considering increasing oversight of investment managers as they look to enter the alternative market.

 

(November 5, 2009) – The $2.3 billion City of London pension fund is facing increasing oversight and asset allocation alterations after a poor 2008 performance.

 


The City’s recent grumblings of change have been mirrored in public funds elsewhere—including many endowments and American public funds—that are rethinking asset allocation and levels of oversight following both poor returns (Harvard and private equity, MassPRIM and portable alpha) and scandal (New York State Common Fund, CalPERS).

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To this end, the Square Mile’s defined benefit pension plan is looking to invest more in alternatives, but investment managers who handle the scheme’s funds have come under increased scrutiny as the fund’s trustees look to implement best practices and rebound from recent poor returns. According to Reuters, the scheme’s trustees simply set that asset allocation and let the seven asset managers go from there.

 


Currently, the allocation is about 80% in public equities, but managers have leeway in making investments and, in some cases, the ability to switch asset classes. This power often was given in the past due to the swiftness of markets and the relative slowness of many pension boards. Possible changes would revolve around increasing the strictness of oversight while, at the same time, broadening the scope of investments.

 


“At the moment, we give them (fund managers) quite a degree of discretion,” Paul Mathews, Corporate Treasurer at the City of London Corporation, told Reuters. Mathews and other trustees are wondering if this loose structure is appropriate following steep losses in recent years.



To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

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