Talk of special relationships between the UK and US has again hit the headlines. Although there seems to be common ground when it comes to politics, it has not extended into the world of pensions.
In fact, pension schemes in the two countries differ tremendously, especially when it comes to alternative investments. Even though investments in alternative assets are on the rise on both sides of the pond, in large part due to their diversification characteristics, the contrast between the countries’ approaches was brought into clear view this week at an event on the subject.
UK schemes are becoming more open to ratcheting up allocations to alternative assets
According to a speaker, property remained the most popular ‘alternative’ asset among UK defined benefit schemes, with the asset accounting for on average 6 per cent of DB portfolios.
Some question whether property should even be considered an alternative asset as schemes have been steadfastly investing in it for some time.
In the US, however, hedge funds are the most popular alternative asset, with allocations on average accounting for 9 per cent of portfolios, followed closely by private equity with 7 per cent.
You would be hard pressed to find a scheme in the UK with allocations to hedge funds and private equity near those levels while, according to the speaker, allocations to private equity have more than doubled in North America over the past year.
So what is the difference?
Many industry pundits point to the fact US schemes are far larger than their UK counterparts and that the market for hedge funds and private equity are more mature.
But another speaker at the event said US pension funds take a much longer-term view than those in the UK, making them more open to illiquid assets such as timber and infrastructure.
He went as far as to suggest investment managers stop sending investors monthly and quarterly investment updates – there is not much to report on a field of trees, he joked.
Is this the way to get schemes to up their allocations? It is hard to tell, but if Strathclyde is any example (see previous page), UK schemes are becoming more open to ratcheting up allocations to alternative assets.
Lisa Botter is deputy editor of Pensions Week. You can follow her on Twitter @l_botter and the team @pensionsweek.
