Asset and liability positions worsened for 63% of pension funds - Bfinance

Almost two-thirds (63 per cent) of pension funds with explicit liabilities said their asset and liability management position has worsened this year, according to a Bfinance survey.

The company’s mid-year Asset Owner Survey: Managing Through Uncertainty showed that this was higher than the 50 per cent level seen among all investors it surveyed, though noted that European pension funds had fared better than their non-European counterparts.

Less than three-fifths (58 per cent) of European pension funds said their position had worsened, compared to 69 per cent in both North America and the Asia Pacific region.

Estimated portfolio losses of pension funds were deeper than those of their fellow investors during the year’s first quarter market volatility, with median pension fund losses estimated at 8.5 per cent compared with median losses of 8 per cent among all portfolios.

Even so, the research found that more than four-fifths (82 per cent) of pension fund respondents were satisfied with how their portfolios performed over the first half of 2020.

Almost two-thirds (65 per cent) of pension funds had made no changes to risk management/risk monitoring in response to developments in 2020, while 19 per cent had made changes and 16 per cent were intending to.

Pension funds were more than 20 percentage points less likely to be taking a tactical view on risk asset exposure than family offices, sovereign wealth funds and insurers or healthcare institutions, with just two-fifths (40 per cent) opting for a tactical view.

They were also less likely than the other investor groups to have made, or be seeking to make, investments in “distressed” or “opportunistic” strategies that explicitly seek to benefit from the pandemic fallout, with almost half (49 per cent) of pension funds not having adopted this approach.

Three-quarters (75 per cent) of pension funds said their long-term asset allocation had not changed since the onset of the Covid-19 pandemic and added that there were no plans for a change, marginally less than among insurers or healthcare institutions, family offices and foundations.

Bfinance said 368 investors participated in its mid-year Asset Owner Survey, just over half (52 per cent) of which were pension funds, with the investors holding combined assets of approximately $11trn (£8.6trn).

Bfinance head of investment content, Kathryn Saklatvala, said: “The first half of 2020 has been extremely challenging for investors of all types, and undoubtedly there is more volatility and upheaval in store as the true nature of the economic impact of Covid-19 becomes clearer.

“While such periods are uncomfortable, they are also crucially informative for investors seeking to understand the diversification and resilience of portfolios, the discipline and skill of asset managers, and the weak-points in risk management capabilities or processes.”

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