Keeping an eye on pensions (TT JulAug05 p28-29)

It is now widely accepted that pension fund deficits should be treated as corporate debt. Employing a borrow to fund strategy will be attractive to some companies. There is a growing belief that shareholder value is maximised by defined benefit pension funds investing in bonds and not equities. However there is a clash between the bond theory and the practical issues which encourage managers to hold equities. In the past trustees have driven investment strategy, in the future this may not necessarily be the case.