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U.S., U.K. pension equity exposures differ: Aon


U.S. Fortune 100 companies invested 62% of their pension plan assets in equities as of year-end 2005, compared with 58% invested in equities by the 200 largest pension plans in the United Kingdom, according to an analysis by Chicago-based Aon Consulting.

"Our data indicates that the average U.S. pension plan exposure to equities--net of the impact of market movements--has remained relatively stable over the last few years, suggesting plan sponsor risk tolerance has not changed much despite the market downturn of 2001 and 2002," Jim Scott, Aon Consulting senior vp, said in a statement. "However, the allocation to traditional domestic equity has reduced modestly in favor of international equities, alternatives and real estate as sponsors seek higher returns and better diversification."

The study also found that 12% of companies in the U.K. analysis reduced their allocation to equities by more than 5% in 2005, although the stock markets performed well relative to most other markets. Nearly all of these switches were from equities to bonds.

"Historically, many U.K. pension funds have had a very high exposure to equities, and it makes sense to consider whether this is still appropriate," Aon Consulting principal Andrew Claringbold said in the statement.

"Increasing the exposure to bonds is obviously one way of reducing risk, albeit with a lower expected return. However, there are also opportunities for pension plans to invest in other assets with similar return expectations to equities, but with different risks such as properties or hedge funds," Mr. Claringbold said.