UK Pension Industry Executes Rapid-Fire Stock Sale

In order to lock in profits, Britain’s $2.9 trillion pension fund industry is pulling out of equities at a rapid pace, Bloomberg reports.

“Triggers are going off constantly,” Justin Arter, head of BlackRock Inc.’s institutional client business for the UK, Middle East, and Africa, told the publication. “There is hardly a week that goes by when a pension fund isn’t redeeming part of their equity portfolio.”

While Bloomberg speculates as to whether the en-masse stock exits are man or machine efforts, the reaping does connect the dots with money managers’ fears of an impending bear market, especially with economists projecting alarming chances of a 2018 market correction. According to a survey by Nataxis Investment Managers, 64% of UK respondents are expecting their performances to be hindered by asset bubbles.

According to the MSCI World Index, global equities have been on a rampaging bull run, rocketing the World Index a full 21% in the black over the past year. Bloomberg reports that this is due to a combination of low interest rates and growing interest in commodity and technology companies. “Triggers take the emotion out of the decision-making,” Paul McGlone, a partner at Aon Hewitt, a consulting firm that’s a unit of Aon Plc., told the business site, who says McGlone adds that half of the UK’s near-6,000 pension plans have at least one trigger in place compared to 2013, where only 30% were prepped to de-risk.

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A recent survey by consulting firm Mercer revealed that the deficit of the UK’s 350 largest listed companies’ defined benefit (DB) pension plans had decreased 9% to £76 billion ($103.1 billion) at the end of 2017, compared to £84 billion at the end of 2016. The research also recommended pension plans prepare for any 2018 market shock.

Similarly, a report from London-based consulting firm Lane Clark & Peacock also projected a spike in 2018 de-risking strategies.

Tags: BlackRock, De-Risking, Equities

After a recent response to a June request by the Ministry of Finance, it appears that private equity investment is on the horizon for Norway’s $1 trillion Government Pension Fund Global (GPFG).

“It will be natural for the Bank to approach investment opportunities and build expertise gradually. The strategy for the fund’s unlisted investments will evolve over time and will be adjusted in the light of experience,” the fund’s manager, Norges Bank, responded in a Monday letter, signed by Norway’s Central Bank Governor Øystein Olsen and Norges Bank CEO Yngve Slyngstad, “Priority will be given to areas where the expertise we build up can be expected to have positive knock-on effects on other parts of the fund’s management.”

In addition to equities of companies in the process of going public, the bank is currently authorized to invest in public equities, fixed-income, and unlisted real estate beyond Norway. While it had previously called for the inclusion of private equity investment in 2010, it is unclear as to why it has taken eight years for the ministry to consider approving the move.

“Large investors will often have better opportunities and better abilities to co-invest alongside private equity funds. Investors are not normally charged management fees for these co-investments,” the letter read, “Several studies indicate that investors with large sums invested in unlisted equity have achieved slightly higher returns after costs than investors with only small sums invested. Lower management costs as a result of better negotiating power and more resources to conduct thorough due diligence have been mooted as possible explanations.”

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“The Ministry of Finance aims to present its assessment of whether the GPFG should be permitted to invest in unlisted equity in the annual white paper to Parliament this spring,” Tore Vamraak, Norway’s state secretary in the finance ministry, said in a Wednesday statement obtained by Financial News London. “The assessment will build on advice from Norges Bank and a report commissioned from an expert group.”

Vamraak expects the report to be published shortly.

Tags: Government Pension Fund Global, Norges Bank, Pension, Private Equity, Sovereign Wealth Fund

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