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Funds News

Pension funds stick by equities despite crisis

LONDON, Sept 19 (Reuters) - Europe’s two largest pension schemes, with a total of about $705 billion in assets, said they would adhere to existing allocations to equities as part of their long-term strategy, despite the sustained market turmoil.

Norway’s Government Pension Fund and APG, the asset manager of the Netherlands’ largest pension scheme, which covers the Dutch civil service and construction industry, said they were concerned by the current financial market problems but had ruled out changes to their investment allocations.

“We have not made any change to our strategy. Every now and then there is a turmoil, that happens, that’s exactly the kind of risk that a long-term investor will get rewarded for,” said Martin Skancke, a spokesman at the Norwegian Ministry of Finance, which determines the $375 billion pension fund’s strategy.

The fund is managed by the central bank’s asset management arm, NBIM, and external managers. In April this year the fund increased its equity exposure to 60 percent from 40 percent.

Jaap Maassen, vice president in charge of European expansion at APG, which manages the 230 billion euro ($333.6 billion) ABP pension fund, told Reuters on Thursday that he did have concerns about the market crisis.

He added that the fund had adequate reserves and a broad diversification strategy to help it weather the storm.

In July the scheme said the fund’s exposure to alternative asset classes such as commodities helped to limit first-half losses on investments to -5.1 percent.

“In the long term, the market volatility presents challenges but we remain relatively optimistic because there are opportunities too,” Maassen said.

PSYCHOLOGICAL EFFECT

Most worrying for him has been the psychological effect of the turmoil. He said he feared investors might become wary of equity investments in general, and that a sluggish response to the subprime crisis from the U.S. authorities had unnerved them.

“The SEC [Securities and Exchange Commission] did not pick up the subprime at an early stage,” he said. “It may take some time still while the intricacies of these deals are unravelled. We may get more surprises.”

He chimed with the director of pensions at Nestle, Jean-Pierre Steiner, who said: “We have not got to the bottom yet. It might take years -- leverage is just huge.”

But like Maassen and Skancke, Steiner sees no need for a brisk change in his schemes’ investment allocations because they have already made significant changes over the last 11 years to accommodate hedge-fund and infrastructure investments.

The schemes have 30 billion Swiss francs ($27.47 billion) in assets and invest on average between 10 percent and 25 percent in hedge funds.

Steiner also implemented tactical changes in response to the subprime crisis, asking managers to double-check their counterparty risk and seek short-term settlements on their over-the-counter instruments to reduce risk.

Spokespeople from two high-profile northern European pension schemes, who did not wish to see the schemes named, also said that a strategy change was not on the cards for the time being. (Editing by Joel Dimmock and Simon Jessop)

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