UK- UK pension funds suffered their second consecutive year of negative returns in 2001 with a median return of -9.7% according to the latest Russell/Mellon CAPS pension fund survey. Results from the report, which covers 1,600 funds with combined assets of £352bn, are the worst for UK schemes since 1990 when the average return was –10.2%. Despite the second consecutive fall, real returns over the five year period remained positive at 3.2% per annum relative to earnings.

The weighted average of pension fund returns came in slightly higher at –8.9% suggesting that larger schemes performed better than their smaller counterparts. Alan Wilcock, head of research & development at Russell/Mellon CAPS says this is due to larger funds holding greater proportions in index-linked gilts and subsequently less in equities.

The survey also found that pension funds are changing investment managers and mandates more than ever. In 1990, one in ten funds surveyed had either changed investment manager or opened or closed a specific mandate, the figure for the end of last year is nearer one quarter.

Wilcock says many investment manager changes are due to major restructuring at the pension funds and that the appointment of specialist managers as pension schemes abandon the concept of balanced management is one of the causes.

Despite the poor returns for UK pensions funds the survey found that 59% managed to beat their own benchmarks by an average of 0.3% during 2001. In the three years to the end of 2001, 67% beat theirs by an average of 0.4%.

The survey suggests UK pension funds are taking an increasingly adventurous approach to fixed income. Of the 1651 funds surveyed, 22.1% included some form of non-gilt fixed income in their benchmark at the end of last year. As recently as the end of 1999, the corresponding percentage was 0.5%.