98% of pension schemes 'well hedged' despite rising inflation fears

Pension fund managers remain confident about the impact of inflation on pension schemes over the next year, despite more than half (57 per cent) predicting a dramatic increase in inflation, according to research from Ortec Finance.

As reported by our sister title, European Pensions, the study, which included pension fund managers in the US, UK, Australia, Canada, the Netherlands, Switzerland, Denmark, Finland, Norway, and Sweden, found that a further 26 per cent of managers expect a slight increase in inflation over the next 12 months.

However, the research revealed that many pension schemes have already taken steps to protect against inflation, with 98 per cent of the pension fund managers stating that their scheme is already well hedged against inflation, while over half (54 per cent) said they are “very well” hedged against this risk.

In particular, over half (56 per cent) of pension fund managers have switched investments to commodities, while 56 per cent switched to inflation-linked bonds, and 51 per cent switched to infrastructure.

Pension fund managers are also set to further change allocations in the year ahead, to continue to help hedge against inflation, with over half (53 per cent) planning to increase allocations to inflation-linked bonds.

In addition to this, nearly half (49 per cent) plan switch to commodities, while a further 49 per cent plan to invest in real estate investment trusts (REITs) over the next 12 months.

Commenting on the findings, Ortec Finance pension strategy managing director, Marnix Engels, said: “It’s impressive to see how confident pension fund managers are about the impact of inflation on pension schemes over the next year, particularly as so many predict that inflation will continue its dramatic rise.

“Many schemes have already reallocated to certain asset classes in order to help inflation-proof their portfolio, and more are looking to do so in the next 12 months, as they predict future turbulence and inflation rises in the next 12 months.

"By modelling and mapping ahead, schemes are able to weather the storm, and overcome any short-term risks while still achieving their long-term objectives.”

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