UK roundup: IMA, Legal & General, UNPRI, FTSE 350

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UK - The Investment Management Association (IMA) has warned that new proposals to regulate the over-the-counter derivatives market could end up transferring all the risk to the end investor.

Speaking of the European Commission's proposals, made public yesterday, Jane Lowe, director of markets at the IMA, said the commission had done well to draft a proposal that incorporated a G20 agreement on central clearing.

But she said there was still "unfinished business" to be addressed.

"Further work is urgently required to make the proposals economically viable for the client side of the market, including pension schemes, insurance funds and UCITS funds," she said.

"Otherwise, there is a strong probability the legislation will merely transfer risk from banks to end investors."

Lowe added that investment managers did not want to see amendments made to exclude them, but instead were eager to see matters relevant to their clients addressed.

"Pension schemes and long-term savings vehicles were not the cause of the financial crisis, nor did they need government support to continue in business," she said, adding that while irresponsible speclation should be more tightly controlled, it should not come at the expense of long-term and stable investors.

"As things stand, the costs of central clearing are likely to be borne disproportionately by end investors, despite the fact they present an extremely low risk to the system," Lowe said.

"In the interests of market stability and to retain good competition discipline, we urge the Commission and others to look again at the impact on end investors and work to redress imbalance between risk and cost."

In other news, Legal & General Investment Management (LGIM), which came second in IPE's recent ranking of biggest European institutional managers as part of the Top 400 asset managers list, has signed up to the United Nations Principles of Responsible Investment (UNPRI).

The decision means LGIM, which manages £320bn of assets, will strive to be active managers, taking various environmental, social and corporate governance issues into account during its decision-making.

Kevin Gregory, the company's interim chief executive, said it had always taken its role as a major investor seriously, adding that the move would provide customers with the better returns in the long run.

Finally, a new survey by Pension Capital Strategies (PCS), conducted with JP Morgan Cazenove, reveals a shift in investment strategy among FTSE 350 pension funds.

According to PCS, the last three years have seen schemes increase their exposure to the bond market by 11 percentage points, with the average figure rising from 37% in 2007 to 48% at the end of June this year.

It said 95 pension funds, more than a quarter of all schemes, now invested more than half of funds in the bond market.

The most dramatic shift was witnessed by software company Misys, which in 2007 only allocated 19% to bonds, but saw this rise to 77% the following year and 89% of total assets by 2010.

Similarly, car manufacturer Rolls-Royce went from investing 32% to allocating 82% to the asset class over the same period.

PCS also found that three pension funds invested mored than 90% of assets in bonds, with Gartmore having total exposure to debt, followed by Hunting and stationary supplier WH Smith, allocating 98% and 94%, respectively.