European pension funds have continued to cut equity allocations over the past year with UK institutional investors leading the migration, according to Mercer’s latest survey.
The survey of more than 1,200 European pension funds with combined assets of over EUR750 billion, revealed that UK institutional investors have made the most meaningful move out of equities – their average equity allocation falling from 43% to 39% over the past year.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
UK schemes have traditionally been among the most equity-heavy in Europe, but now sit behind Ireland, Belgium and Sweden in terms of equity exposure.
The Irish plans have the highest allocation (44%), while the average equity allocations across all other regions covered in the survey are between 10% and 30%.
The report stated that rising equity markets over the course of 2012 and early 2013 have provided some investors with opportunities to bank gains and reduce equity exposure in response to improvements in their funding levels.
Mercer’s research also found that the proportion of schemes across Europe that allocate some part of their assets to a liability hedging (or LDI) mandate increased from 15% to 26% over the last year, with such strategies becoming commonplace in the UK and the Netherlands.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataNearly half of the schemes surveyed also now have an allocation to alternatives, with around 75% of UK schemes claiming an alternatives allocation.
Pat Race, UK head of Mercer Investments, said: "Against a backdrop of ultra-loose monetary policy, negative real interest rates and a range of unsolved economic issues, pension plans are faced with the challenge of generating positive real returns, while reducing funding level volatility."
"In response, investors are expanding their investment tool-kit, making their strategy more dynamic, and are introducing scenario and stress test analysis into the risk management process," Race added.
