Pensions schemes focused on de-risking in the first quarter of the year after increasing their funding ratios in 2016, researchers say.
Interest rate and inflation hedging increased as funds “took risk off the table”, according to BMO Global Asset Management’s quarterly LDI Survey, which focuses on UK pensions schemes.
Interest rate hedging increased by 7% over the quarter to £29.7 billion (€34 billion), and inflation hedging rose by 4% to £24.8 billion.
The was a preference for using bonds over swaps in spite of the demand for bonds causing bonds to become more expensive relative to swaps over the quarter. This was a continuation of the theme from the end of 2016.
Rosa Fenwick, liability-driven investment portfolio manager at BMO GAM, said pension schemes that were keen to retain long-term exposure, but have short-term concerns, have shown interest in downside protection.
But she added there was still interest for equities.
“Positive equity market moves towards the end of last year led to a theme of protecting gains. Equities are still the most popular return asset and, despite their elevated levels, remain an attractive long-term asset class.”
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