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Overall, the consultant’s research, conducted across 1,200 schemes in 14 European countries, found a return towards the alternative asset class, after seeing a fall in the year previous. It also reported a slowdown in the falling exposure to equity markets, with the average allocation only falling by 1 per cent across Europe. In the UK, the reduction was 2 percentage points. However, a slower rate than previously seen, given average equity allocations, fell by 27 percentage points over the last 10 years.
A decrease in exposure to domestic equities continued as European funds diversify, and was matched with an increase to emerging markets. Almost half of the European funds now have allocations to these markets, a 13 percentage point increase from last year. The predicted shift of scheme fixed income allocations towards corporate bonds has also yet to materialise on a macro level. However, Mercer singled out Germany, the Netherlands and Sweden as markets where this was prominent. Belgium still remained the country with the highest average allocation to equity, followed by Ireland and Sweden. Norway and Germany led the way in terms of fixed income, with schemes allocating more than 65% of assets.
Almost a fifth (17%) held hedge fund allocations. However, Mercer reported no fund-of-funds searches for the second year running, as schemes tire of the double-layer fee approach and allocate directly. Mercer saw a 3 percentage point increase in the proportion of schemes conducting LDI strategies from last year, but stressed this was dominated by schemes larger than €500m.
Mercer’s European director of strategic research, Phil Edwards, said that, despite the relatively small increase in LDI use, the management of risk remained a concern for trustees. "The complexity and governance challenges around LDI may have acted as a barrier for smaller schemes in the past", he said. "Given the range of pooled and delegated LDI approaches now available, we expect to see the gap in take-up between large and small schemes reduce over time."
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