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Pension and charity funds average 13 per cent returns in 2010, says State Street

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Trustees of the average pension or charity fund will be looking at returns of 13 per cent in 2010, according to figures released by State Street Investment Analytics.

The figures are based on the preliminary results of State Street’s WM UK Defined Benefit Pension Fund and UK Charity Fund Universes for 2010.

“There was a general upward trend in the equity markets in 2010; although continued volatility often resulted in moves of one percent in a day. Most pension funds and charities maintained their investment strategies and were rewarded as markets generally continued to recover,” says Jeanette Patrizio, vice president of State Street Investment Analytics. “Local authority pension funds also benefitted from a higher commitment to equities and outperformed corporate schemes last year.”

UK equities, strategically the largest component of the majority of funds, returned close to 15% over the year, largely in line with the FTSE All Share index.  International equities, which represent nearly 30% of the average fund, had mixed but positive results for the UK investor. North America, Japan, Asia Pacific (excluding Japan) and the emerging markets provided returns of between 17% and 25%. Continental Europe was comparatively weak with a return of just 6% for the year.

Currency was a feature of the international returns, as Sterling strengthened by around 4% against the Euro, but declined by 3% against the US Dollar and 18% against the Yen.

Bonds also posted solid positive returns over the year. Government bonds benefited during periods of uncertainty, with UK Government bonds, for example, returning 8%. Corporate bonds delivered higher returns as investors looked for better yields. Concern over inflationary pressure boosted index-linked returns to nearly 12%.

Returns from alternative strategies were highly variable although the aggregate returns for hedge funds and private equity were 11% and 19% respectively. Property turned positive with a return of 13% for the year.

The vast majority of defined benefit pension funds and charitable funds are run against strategic asset allocations designed to meet specific long-term investment return and investment risk criteria. These strategies defined the individual fund outcomes for 2010.  Pension funds that have a long time horizon, strong employer backing or are open to new members have generally benefited from high equity content in 2010, as have most charity funds.

Moderate disinvestment from equities and investment in bonds occurred in 2010 as the equity weight fell from 51% to 49% while the bond weight rose from 33% to 35%.  There were significant inflows into alternatives and property although the overall representation of these investments within the aggregate of funds showed little change over the year.

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