StockMarketWire.com - Pension fund allocations to alternatives are increasing as European investors continue to turn their back on the equity markets, according to Mercer’s annual European Asset Allocation Survey.

The survey of more than 1,200 European pension funds with assets of over €650bn found that an increasingly broad range of alternative asset classes are being considered by pension plans, with 50% of schemes now holding an allocation to alternatives, up from 40% last year.

Mercer’s research reveals that schemes in traditionally equity-heavy markets such as the UK and Ireland still have the largest equity weightings although they have witnessed the largest falls in equity allocations, mainly driven by a move away from domestic equities.

In the UK, average allocations to domestic and non domestic equities fell by 4 percentage points (from 47% to 43%) over the last 12 months.

In Ireland the current average allocation to equities is 44% - down 6 points from last year and down over 20% since 2008.

European director of consulting within Mercer’s Investments business, Nick Sykes, said: “As the eurozone crisis continues unabated, pension funds are faced with the dual challenge of managing portfolio risk brought on by market volatility, while at the same time identifying opportunities that will generate returns to support future liabilities.

"In their quest to control volatility without sacrificing long-term returns investors have turned their attention to alternative asset classes."

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