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February 16, 2006
U.K. pension funds increase bets on hedge funds, private equity
U.K. pension funds are putting more money into hedge-fund, private-equity and real-estate investments in hopes of making the money needed to pay retirees, who are living longer.
Watson Wyatt Worldwide Inc. awarded 61 pension contracts in 2005 for so-called alternative investments, almost double the 32 awarded in 2004, the company said today. The overall number of investment contracts awarded last year rose 23 percent to 555 from 451 in 2004, said the U.K. unit of the Arlington, Virginia- based company, which consults on employee benefits.
The increase in alternative investments reflects the need to meet rising costs for providing pensions to employees, whose life expectancies are rising. The deficit between what the pension funds of FTSE 100 companies have in assets and what they expect to pay their members is about 66.2 billion pounds ($115.2 billion), according to the company.
``People are trying to get their assets to work harder,'' Watson Wyatt spokesman Paul Deane-Williams said in a telephone interview today. That means they are looking to spread risk away from stock investments, as well as looking for assets that will increase more in value, he said.
The expected lifespan for an Englishman born in 1950 was 66.4 years, a figure that rose to 75.1 years for those born in 1997, according to the U.K.'s Office for National Statistics. Investing in a wider range of assets may help the funds meet their increased obligations.
'Hedge Fund Index Rises 48 Percent.'
Hedge funds aim to beat returns from stock markets by betting on rising as well as falling securities. Over the five years ending in November, the CSFB Tremont Hedge Fund Index advanced 48 percent, compared with a 2.4 percent return for the MSCI World Index during the same period.
Watson Wyatt increased the amount of bond contracts it awarded on behalf of pension funds to 52 last year from 22 in 2004, the company said.
Pension funds are increasing looking to bonds such as emerging market debt that pay higher returns. They're also putting more into money into derivatives, Watson Wyatt said.
-Bloomberg-
Posted by su at February 16, 2006 10:06 AM