Pyramis Poll Shows European Pensions Prioritize Managing Volatility in 2011

(March 9, 2011) — European schemes are increasingly implementing volatility-related strategies, according to a new survey by Pyramis Global Advisors that focused on 160 private occupational and public pension schemes in the UK, the Netherlands, Switzerland and Nordic countries.

The survey noted that pension fund managers are leaning toward dynamic asset allocation strategies. “It is clear that defined benefit pension scheme leaders are beginning to act upon the lessons they believe they learned from the 2008‐2009 financial crisis and the volatile investment markets that followed,” Young D. Chin, chief investment officer, Pyramis Global Advisors, said in a release. “We think this year’s survey results suggest European pension schemes may be reassessing the risk and return trade‐offs for their portfolios and weighing a variety of strategies to help enhance returns in an uncertain environment.”

Pyramis’ findings showed that investors remain concerned about market volatility, and are increasingly taking an active approach to educating trustees in order to be better equipped to dealing with turbulent markets.

When asked about the solutions DB schemes could employ when dealing with volatility, increasing the allocation to global tactical asset allocation strategies ranked high in priority, as well as diversifying into higher returning assets, such as real estate, private equity, and commodities.

Furthermore, Pyramis’ findings found that European pension schemes are willing to return to riskier asset classes in search of higher returns. Nearly 70% of plans in the UK, 64% of those in the Netherlands, 59% of plans in the Nordic countries, and 58% of those in Switzerland plan to increase their exposure to emerging market equities.

The study follows an earlier report from SEI, which was completed by 50 executives overseeing pensions ranging from $250 million to $10 billion in assets, that showed pension plan sponsors say their number one priority for the coming year is finding a way to control funded status volatility. “Effectively addressing this year’s priorities will be no easy task for pension plan sponsors,” Jon Waite, director of investment management advice and chief actuary of SEI’s Institutional Group, said in a release. “Pension management is a complex set of moving parts and the priorities identified in this poll are a sign that executives overseeing these plans are taking a more holistic view. We’re seeing an encompassing high level priority of ‘regaining control’ and many plan sponsors are looking externally for expertise and new techniques to get this accomplished.”