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| Pension
schemes encouraged to go global in fixed income
By Sophie Baker |
| UK
pension schemes should have a wider sweep of fixed income in their
portfolios, says Barings Asset Management (Barings). Barings believes that a move away from the currently distorted bond markets in the UK, where the risk of a significant increase in supply at some point in the future remains, should be substituted for exposure to global fixed income. The investment management firm also sees the size of the opportunity set, in terms of access to all major bond and credit markets around the world, as a significant plus for the exposure to global fixed income. Research by Barings has shown that amongst institutional investors there is ‘a disproportionate bias towards UK fixed income investments’, with 80 per cent of pension fund fixed income investments allocated to the UK, and just 20 per cent invested abroad. “The UK bond market is not ideal for pensions scheme trustees,” commented Richard Graham, head of UK institutional business at Barings. “The yield curve for gilts has become significantly distorted as a consequence of government regulation, while the corporate bond sector is neither broad nor deep. Access to a wider opportunity set can offer UK pensions schemes many advantages, including access to all the major government and corporate bond markets around the world, and the use of currency as an additional source of alpha. In an environment where liabilities continue to grow, we believe having access to the full fixed income universe should help schemes extract more value from their bond assets without adding risk.”  Harjeet
Heer, head of the global aggregate investment team at Barings, added:
“Several factors are currently distorting the UK bond market,
posing potential risks to investors, and Barings believes the time
has come for UK schemes to consider moving at least a portion of their
bond allocation to a global aggregate benchmark.” Heer said breadth is another problem. “It is possible to allocate nimbly into different areas of the credit market in the UK with some success, but compared to the much broader global aggregate opportunity set, the opportunities for delivering alpha from this market are significantly more limited. Furthermore, the recent dislocation in credit markets globally present a major buying opportunity at spreads more commensurate with the risk being taken.” - Pensions Age October 2008 |