UK pension funds are dipping a toe into emerging market debt as a way of diversifying portfolios, according to new research.
A survey by Aberdeen Asset Managers of 100 pension funds showed 24 per cent already have exposure to emerging market debt, with half of these schemes planning to increase their allocation over the next 12 months.
The asset class is viewed as one offering potential growth rather than capable of matching liabilities, said Richard Dyson, co-author of the white paper and chairman of Pension Intelligence, Aberdeen’s trustee education programme. Diversification is an additional benefit.
“Yields are higher than most developed markets, returns are decent and correlation is relatively low,” he said.
Schemes yet to gain exposure to EM debt are not in a rush to change that. About a quarter (28 per cent) plan to gain some exposure in the next year, and 43 per cent in the next three years.
“Risk is seen as the biggest deterrent but this is partly because of lack of education,” said Mr Dyson.
Political risk is the main concern, with others related to currency, liquidity and inflation.
“Liquidity can be an issue. We had issues in recent years of fixed income assets being a lot less liquid than had been expected,” said Claire Ballantyne, researcher at Hymans