Mercer's investment consulting business is proud to present our third
pan-European survey, covering 1,104 funds with assets totalling €538
billion. Of which, are 849 UK pension funds with assets totalling €379
billion (£265 billion).
In 2006, we broadened the survey's scope by including funds from
continental Europe and Ireland. This year Europe (excluding the UK) is
represented by 255 funds with assets amounting to €159 billion.
Asset classes by region
Bonds continue to be the dominant asset class among
continental European funds. French, German and Portuguese funds invest more
than 60% of their assets in bonds, on average.
Interest in 'other' assets remain strong. This category includes cash,
various hedge fund strategies, global tactical asset allocation, active
currency management and private equity.
The following illustrates these findings:
Changes in asset allocation
The average equity allocation of UK funds is now
58% - when viewed as an average overall funds. The cumulative fall since
2003 is 10%. However, this fall actually represents a greater switch away
from equities than would first seem apparent, as strong equity market
performance since the market lows of March 2003 would nautrally resulted
in an increase in equity allocaiton.
This is shown in the graph below:
The chart below breaks the exposure to 'other'
assets, showing the proportion of funds investing in each underlying
category of 'non-traditional' assets and the proportion of total spend on
alternative assets directed to each asset class.
the UK, property
continues to dominate the landscape for alternative investments, accounting for over
40% of the total spend on alternatives.
As can be seen, the findings show that hedge
funds, GTAA and active currency management remain the most popular
alternative asset classes.
Anticipated changes in 2008
Risk management, not to be confused with risk reduction, is anticipated to continue to
dominate over the coming year. This is likely to manifest in the form of:
Overlays and fund-specfic benchmarks for bond
Diversification of sources of risk remains
another recurring theme. Around one in ten funds has indicated an
interest in adding exposure to funds of hedge funds, active currency and
Europe and Ireland (excluding
The equity allocation of European funds (excluding
UK) has continued to increase from 40%
at the start of 2006, to 42% at the start of
2007, to 50% in 2008. These findings are highlighted in the following
The following chart breaks down the exposure to 'other' assets, showing
the proportion of funds investing in each underlying category of 'non-traditional'
assets and the allocation to each type, for those funds that are
There is still continued focus on risk management
across the countries survy
ed. In general, there appears to be an emerging
preference for passive management against fund-specific benchmarks. However, the
Dutch seems to lean towards actively managed bond portfolios measured against
fund-specific benchmarks, and shows an egarness for using derivatives strategies to mitigate
Additionally, diversification of sources of risk-taking is
likely to be driven by increased exposure to active currency and GTAA
There is also a limited
interest, in common with the UK in
making additional allocations to private equity or initial allocations to infrastructure and