The UK’s big pension funds now own a smaller slice of shares quoted on the London stock market than at any time for nearly half a century. Figures from the Office for National Statistics claim that ownership has slipped to just 9% of the total – the lowest since 1963. So what happened to the “cult of the equity” – the concept that shares outperformed other assets over the longer term?
Pension funds have become less important as schemes are closed to new members or are closed altogether and those that remain move into bonds to cover “liabilities” – the ageing membership. But even within pension funds – the decline does not tell the whole story. Funds now increasingly consider non-UK shares. And the pension statistics ignore Sipps, a growth area for purchases of equity funds and individual shares. The investment world abhors a vacuum. As pension funds continue their secular decline – there will be little left in 20 years without a change of policy – foreign buyers including sovereign funds have stepped in. Equities are still seen as good long-term holdings.
The UK equity market was valued at £1.8 trillion at the end of December 2011 – it is more today. Foreign owners control about 40%. Their growth in importance over the past 25 years has been almost a mirror image of the decline in big pension fund power.