Our second Investment Insight piece tackles the conundrum of where pension funds should invest over the long term, cognisant of the regulatory pressures that bear down on investment decisions.

Derisking (selling equities and buying fixed income assets) has been a growing theme amongst private Defined Benefit (DB) schemes over the last few years. Local authority funds, in general, still hold on average 60% in equities and have less than 20% in fixed income bonds (as per the NAPF’s 2012 Annual Survey results).

Looking back into the history books and using the analysis gathered by Barclays (Equity-Gilt Study 2013) and Credit Suisse (Yearbook 2013), we quickly surmise that asset returns over the last 30 years have been historically very high. Bond returns over this period and particularly over the last 13 years have been exceptionally high. The worry now is that past performance conditions our aspirations for future returns: will we have it so good going forward?