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Equity exodus continues in liability battle

One in three pension schemes reduced their exposure to equities last year, says the National Association of Pension Funds.

Thirty per cent of 350 resp- ondents to a survey cut the proportion of their portfolio inv-ested in equities during the last 12 months and 25 per cent increased their bond holdings.

The figures confirm that funds are steering away from higher-risk investments towards safer options to match liabilities more effectively. The average proportion of portfolios in equities is now 63 per cent, with 29 per cent in bonds.

The report found that the mean solvency level as measured under accounting standard FRS17 is 82.5 per cent. Funding levels are higher in open schemes at 85 per cent than in closed schemes at 79.6 per cent.

Just under half of final-salary schemes use derivatives as part of their portfolio management. Stock lending is permitted by 23 per cent of schemes and by 62 per cent when results are weighted according to the value of assets managed.

NAPF chief executive Christine Farnish says: “Pension funds are becoming more risk-averse in their investment patterns. The conclusion is that changes to investment patterns have been driven more by liability-matching than by an expectation of generating high returns.”

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