Pension funds to reduce fixed income exposure in light of deteriorating returns

Pension funds and institutional investors expect the returns from fixed income portfolios to continue to deteriorate in the face of rising inflation and interest rates.

Research from Aeon Investments shows that 43 per cent of pension funds expect performance of this asset class to further deteriorate over the next 12 months, with 13 per cent anticipating a significant decline. Only 28 per cent of respondents expected performance in fixed income markets to improve.

The survey was conducted among pension funds and other institutional investors in Europe and the US who have around $574bn of assets under management.

Aeon Investment’s research found 62 per cent of those surveyed expect institutional investors to reduce their exposure to fixed income during 2022, and just 11 per cent expect them to increase it. When asked about the institutions they work for, 48 per cent expect them to reduce their exposure by over 10 per cent this year, with a further 38 per cent anticipating a reduction of up to 10 per cent.

Aeon Investments chief executive Oumar Diallo says: “The fixed income market has endured a difficult time, and the current macro-environment points to continued struggles for large parts of the market.

“Many investors are reallocating to other asset classes, especially those that provide a degree of hedging against inflation such as commodities, and others that provide an attractive higher yield but in a relative low-risk environment such as structured credit.”

Corporate Adviser

Pension funds to reduce fixed income exposure in light of deteriorating returns

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