Irish pension funds diversify amid uncertain outlook

Pension funds here have lowered their exposure and diversified into property, infrastructure and hedge funds according to a new report from Mercer.

The survey of 876 institutional investors across 12 countries managing assets of around €1 trillion found average equity allocations for Irish defined benefit schemes have fallen and now stand at just 28% compared to 34% in 2018

The Mercer’s 2019 European Asset Allocation survey also found that bond allocations remain broadly at 50%, while allocations to alternative assets like property, infrastructure and hedge funds have continued to increase from 15% up to 22%.

“While 2019 has so far been marked by cautious optimism, investors need to remain vigilant in an ever-evolving macro-economic and political backdrop,” said Olivier Santamaria, Head of Investment Consulting, for Mercer (Ireland) Limited.

“In the past year, Irish pension funds have reduced their exposure to equities, diversifying into other asset classes including property, infrastructure and hedge funds.”

The heightened global awareness of the sustainability agenda also appears to have had an impact, with just over half of schemes now considering environmental, sustainable and governance (ESG) risks as part of their investment decision-making, up from 40% last year.

Regulatory pressure seems to be the main driving force behind this behaviour the survey found, with just 14% of respondents indicating decisions are being driven by the challenges posed by climate change.

“Mounting evidence of overextension of credit means investors should continue to position their portfolios to weather possible market volatility, in the face of political uncertainty and diminished liquidity as Central Banks reign in their market involvement,” Mr Santamaria said.

“We expect the increasing focus on sustainability to continue and anticipate ESG factors will become an integral part of investment strategy setting and risk management.”

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