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Bringing you news, views and analysis since 2013

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UK pension funds back global emerging markets

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Almost a third (29 per cent) of UK pension schemes are now more likely to allocate to emerging markets as a result of the recent global market volatility, compared to 4.3 per cent in 2007 and zero per cent last year, according to a poll by Baring Asset Management.

Of those pension funds that invest in emerging market equities, 90 per cent include Asia in their portfolio while three quarters (76 per cent) of funds invest in Eastern Europe and Latin America. 

Just under half (48 per cent) of UK pension funds invest their equity exposure in global emerging markets though a standalone emerging markets mandate, whereas 43 per cent invest it as part of a global equity portfolio. 

Overall allocations to equities have decreased significantly over the last four years, from 70 per cent in 2006 to just 47 per cent this year. However, the research indicates that confidence is returning for equities with 14 per cent of respondents expecting to increase their allocation to equities in the next 12 months compared to just five per cent a year ago. Just over half (52 per cent) expect their allocations to remain the same.

When asked to cite their most important investment priority over the year ahead, maximising returns with minimal risk was voted the most important while achieving cash plus returns ranked second. When it comes to defining success from an investment perspective, measuring returns against their ability to match liabilities ranked top.

Richard Graham, head of UK institutional business at Barings, says: “This shows that schemes recognise that emerging markets are more likely to lead the world out of economic recession than the debt laden developed markets. Schemes have seen that there are few safe equity havens and would prefer more exposure to the growth parts of the world, and less to the volatile West. We are seeing significantly more interest from both schemes and their consultants.”
 

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