I was at a talk recently where a senior M&S executive claimed that 75% of shares are owned by pension funds.
And then this week I have suffered trolls commenting on my disquiet about equity investment by pension funds.
So, I though I would do some research. I checked out the data on the ONS on share ownership. This is it:
So, pension funds own 3% of the FTSE 100. And their holdings are worth around £60 billion.
The ONS does admit problems in identifying owners: however, insurance company pension funds can be properly identified, apparently. What this, admittedly, does not address is the fact that many pension funds now themselves invest through other funbds (how about that for double charging for the benefit of the City?). But right now I can't find the data to support the claim that pension funds are so important in the equities market.
I am open to explanation.
Or to believing that the claims are not true.
But I would ask that alternative claims made are referenced, please.
And whatever is the case, please do note the downward trend in equity holdings by pension funds, contrary to the significance all those who have been arguing with me of late suggest such holdings have.
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I think the answer is two fold;
First, ALM issues for defined benefit schemes. If companies are required to discount their pension liabilities at long-term market rates then to reduce balance sheet volatility they have migrated away from equities into bonds. This has also been driven by the maturing of these schemes – particularly as they close to new members.
Second, ETFs (Exchange traded funds). Defined contribution schemes and other pension pots are still investing in equities but not in the traditional way but through ETFs. The size of the ETF market globally has grown from about USD 400bn in 2005 to USD 4.4 tn in 2017. Most of these are equity ETFs that end up as huge buyers of the underlying stock…. and they are usually based off-shore.
This is, I think why the ownership data are not very helpful.
Maybe
But what is the true holding then?
Sorry, I don’t know – and I don’t know how you could get meaningful data on it.
There is an older ONS bulletin from 2010 that includes figures for 2008 and 1998 (when ROW was 30%, insurance companies and pension funds each held nearly 22%, unit trusts were just 2%, and “other financial institutions” under 3%). See https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2012-02-28
Presumably the pensions line in that ONS data is counting only shares held directly by a pension fund, and not shares that a pension fund beneficially owns indirectly through say a unit trust, or an investment partnership structure, or an offshore vehicle? I suspect a large slice of the ROW, unit trust and “other” line represents UK pension fund investment.
Even so, 75% sounds like an exaggeration. Perhaps it just feels that way to the executive.
What you are saying is opacity is akive andcwell in UK pensions
Interesting…..
Not so much opacity – most pension funds are not too concerned about keeping their investment decisions private – as spreading of risk. If a pension fund wants to invest in equities, should it buy shares directly – concentrating its investment in the chosen companies – or invest in an investment fund that itself invests in a basket – perhaps a unit trust, perhaps something else.
That approach gives access to a wider range of investment managers and investment strategies, and a piece in larger funds that can access a wider pool of investments (public, private, etc) that might not be available or economic (or low enough risk) for the pension fund to invest directly.
And what is the cost of all these layers of opacity?
Very high….