New State Street Research Reveals Notable Changes to UK Public Sector Pension Scheme Asset Allocation

Friday, March 24, 2017 8:38 am EDT

Dateline:

LONDON

Public Company Information:

NYSE:
STT

LONDON, March 21, 2017 - New research1 released today by State Street Corporation (NYSE:STT), looking at the asset allocation of 105 UK public sector pension funds over the three-year period to the end of 2016, reveals an increase of 61 percent in their exposure to alternatives representing £16.6 billion in assets; and 31 percent increase to fixed income representing £34.7 billion in assets. This highlights the importance of multi-asset tools and capabilities as the 89 participating funds in the UK’s Local Government Pension Scheme (LGPS)  prepare to transition into eight asset pools by April next year.

Traditional assets classes such as equities and fixed income remain core holdings for these funds with equities accounting for 48 percent, and fixed income accounting for 14 percent of their overall allocation2. The asset allocation of the 89 member funds participating in the LGPS pooling initiative will likely see considerable changes to their current portfolio construction over the coming years.

Other key findings include:

  • Overall scheme assets increased by 13% to £251.8 billion
  • Overall exposure to equities increased by 9% to £120.7 billion
  • Allocation to domestic equities allocation decreased by 5%, accounting for £37.9 billion
  • There was a signficant increase in exposure to emerging market equities, up 33% to £446.5 million

Andy Todd, head of UK Pensions and Banks, Asset Owner Solutions, State Street said, “Mounting cost pressures and persisting lower-for-longer yields have led pension fund investment committees to seek ‘higher yielding’ assets to assist them in meeting their strategic investment targets. Alternatives have historically been seen to provide this solution. This research highlights how these pension funds are becoming increasingly comfortable navigating complex asset classes such as alternatives as well as emerging market equities. These changes to the investment landscape are systematic, so we will likely see a continued trend toward such investments.”

JR Lowry, head of State Street Global Exchange EMEA, added, “LGPSs are in a period of extreme change and technology will be the next stage of their evolution. As they reshape to adapt to their new size and structure, they have a significant opportunity to overhaul outdated legacy systems and benefit from new economies of scale. If embraced and properly harnessed, technology has the potential to help them confront these challenges. For example, portfolio tools need to be highly effective in spanning the full range of asset classes a pooled pension scheme might consider, and better align asset and liability-related calculations. Supporting these tools will create an accompanying need for data aggregation and management.”

1 Pension Funds Online research commissioned by State Street, analysis by PollRight, conducted in February 2017 of UK public sector pension data between 2014 and 2016

2 As at end of 2016

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors, including investment servicing, investment management and investment research and trading. With $29 trillion in assets under custody and administration and $2.47 trillion* in assets under management as of December 31, 2016, State Street operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia. For more information, visit State Street’s website at www.statestreet.com

* AUM reflects approx. $30.62 billion (as of December 31, 2016) with respect to which State Street Global Markets, LLC (SSGM) serves as marketing agent; SSGM and State Street Global Advisors are affiliated.

Important Information

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for decisions based on such information and it should not be relied on as such.

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Lydia Cambata
020 395 7319
lcambata@statestreet.com
@StateStreet

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