UK/EUROPE - Pension funds need to start considering their tactical asset allocation rather than where they can get the best returns geographically, according to Roderick Munsters, chief financial officer for PGGM the e52bn Dutch fund for healthcare and social workers.
Speaking at the NAPF's investment conference in Edinburgh, he said diversifying assets into alternatives like hedge funds, private equity and commodities was likely to produce better returns than splitting assets geographically.
"This is a trend I predict for the future as continued globalisation and the introduction of the euro makes geographical diversification harder to define," he said.
He said that UK pension funds should also consider the difference the introduction of the euro would make. "The euro would change the domestic market boundaries. Pension funds in the UK ought to consider the impact now to be in a position to adapt effectively later."
Andrew Dyson, head of institutional marketing in Europe at Merrill Lynch, told the conference that one way to do this would be to start considering "re-engineering" indices now to show what might happen if the UK were already signed up.
"It's time to think about changing the old two asset system the UK uses - UK and World-ex UK. In margin terms the differences are minimal, but translated into capital value, they are considerable. Now is the time to look at indices based on UK, Europe including the UK and World including UK," he said.
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