Large funding deficits are driving pension plans to plough money into private assets in pursuit of returns, heightening the risk of crowded trades and subdued gains, according to new research.
The report by Amundi, Europe’s largest asset manager, and Create Research surveyed 152 defined benefit pension plans managing €2.1tn in assets. Its findings illustrate the scale of the challenges facing the global pensions industry as it seeks to escape the punishing effect of historically low bond yields along with elevated valuations across equities markets.
Funds have been buoyed since the 2008-09 financial crisis by a powerful rally in equities markets that has helped to counteract the lacklustre streams of interest payments that are provided by holding government or corporate debt. But many managers now worry about growing headwinds: just over seven out 10 respondents in the poll say they are expecting returns to be significantly lower in the years to come.