Exchange merger spells trouble for UK schemes
Pension schemes face lower returns due to the merger of the UK stock
exchange with a continental euro-denominated exchange, according to investment
bankers.
The introduction of the euro has already cost UK pension schemes
£l3bn, recent research from performance measurer CAPS reveals. Currency
overlay manager Pareto Partners puts this figure closer to £20bn now as
UK schemes continue to shun proactive currency management. CAPS found that
returns since the launch of the euro in January 1999 had a sterling measure of
24.4% a year, but on the local level - using local currencies -. the return was
30% meaning a 5.6% loss entirely due to currency differentials.
However, with most funds investing across the board, the weakening of sterling
against other currencies - such as the yen - enabled some cushioning to
compensate for euro losses.
The merger between the London and Frankfurt stock exchanges will create
dual listings between sterling and the euro and many companies are expected to
list in euro from autumn to attract international investors.
However, there
were concerns last week of risks to companies buying shares in euros but paying
out in sterling. Some believed this would result in companies losing money even
if share values rose.
Alan Rubenstein, head of the National Association of Pension Funds
investment committee, said: "Basically pension funds have lost out because the
euro has collapsed and that represents a real loss in income. The currency
mis-match is a real concern."
However, Michael Hughes, director of Baring
Asset Management, felt the concerns were premature as the markets would adapt
to the dual listings.
He said: "There has to be a global standard as this
progression happens and as London's regulations are business led, hopefully
ours will be those adopted."
Sarah Wilson, managing director at corporate governance agency
Manifest, said: "This could be the catalyst for real change but the
London Stock Exchange has got to take the lead. Our legal system is the model
for the markets so why throw the baby out with the bath water?"
By Simon Miller, Pensions Week
15 May, 2000
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