A new report from Greenwich Associates, the New York-based research firm, found that US public and private pension plan sponsors, endowments and foundations have reduced their allocations to domestic equities and fixed income.
The average portfolio had 52 per cent in home-grown companies in 2000, while today’s average allocation is 47 per cent.
Dev Clifford, consultant at Greenwich, expects domestic weightings to fall even further. He said: “Twelve per cent of US plan sponsors tell us that they expect to make significant cuts to their actively managed US equities over the next three years, and another 13 per cent plan cuts in passive domestic equities.”
Allocations to fixed income holdings have fallen from an average of 26.8 per cent of portfolio assets in 2003 to 23.7 per cent in 2004.
Meanwhile, US investors have been upping their international equity weightings, which were up from 11 per cent in 2003 to 13 per cent in 2004.
Alternative investments have also gained favour during the past twelve months. Hedge fund allocations have increased to 1.6 per cent of plan assets, compared to 1.0 per cent in 2002 and real estate weightings are up from 3.6 to 3.8 per cent of assets. Private equity is also now taking up 3.4 per cent of the average portfolio, up from 3 per cent a year ago.
These changes are happening because the investors are expecting lower returns from all the major asset classes, according to Mr Clifford. The average annual rate of return they predict from fixed income over the five years has fallen sharply from 5.9 per cent in 2002 to 4.9 per cent in 2004. Average anticipated returns for domestic equities fell from 8.2 to 8.1 per cent over the same period.
More than a third of US investors expect to invest more money still in hedge funds in the next three years, while 30 per cent plan additions to private equity and almost a quarter plan increases in real estate.
Greenwich based the findings on in-person interviews with investment staff at 610 corporate funds, 242 public funds and 235 endowments and foundations.
RM
