Pacific Ex Japan Equities and Emerging Market Equities strongest performers of 2009 posting returns of 50.7% and 58.9% respectively

Average equity allocations climb back to over 50

LONDON, 30 March 2010 — New research from BNY Mellon Asset Servicing reveals that the average UK pension fund achieved a weighted average return of 14.4% for the year ending 31 December 2009 - this is the best return BNY Mellon has recorded since 2005. This was a real return of 12.0% when measured against the Retail Price Index for 2009 and 12.9% when measured against the National Average Earnings Index.

This is a strong turnabout in annual performance of UK pension funds over the last 12 months. In 2008, the average UK pension fund achieved a weighted average return of -13.6% for the year ending 31 December 2008 - the first time that BNY Mellon has recorded negative yearly returns for UK pension funds since the three-year downturn at the beginning of the decade.

Results were also back in the black over a three-year period to 31 December 2009 with an average return of 1.7% per annum. However, over this period pension funds failed to make gains against both the Retail Prices Index and the National Average Earnings Index.

Over the longer term, results were much more varied with funds achieving a weighted average return of 6.3% per annum over five years to 31 December 2009. Funds made real returns over this period of 3.5% per annum against the Retail Prices Index and 3.0% per annum against the National Average Earnings Index. Over 10 years to 31 December 2009, the average fund posted a positive return of 3.2% per annum which beat the Retail Prices Index, however underperformed the National Average Earnings Index which posted 3.6% per annum respectively.

Over the year returns were in positive territory for each of the key equity markets with one exception. The poorest performance came from Japanese Equities which posted the only negative equity return with -5.9%. UK Equities posted 30.1% over the period while the strongest returns came from Pacific Ex Japan Equities with 50.7% and Emerging Market Equities with 58.9%.

Bonds were mixed during 2009 with UK Bonds returning -1.2% and Overseas Bonds providing -9.7%. Index-Linked Gilts performed well in comparison returning 6.4% over the same period. Property continued to struggle with this sector returning -5.8%.

Commenting on the results, Alan Wilcock, Performance and Risk Analytics Manager, BNY Mellon Asset Servicing said: "Improvements in global markets in 2009 resulted in the majority of UK pension funds posting double-digit investment returns for the year. This is the best return BNY Mellon Asset Servicing has recorded since 2005 and marks a long coveted return in fortunes for UK pension funds which suffered the worst annual returns for 30 years just one year earlier."

Asset allocation trends over 1-year and 10 years

The average equity asset distributions rose from year on year from 48.8% to 52.1%. The main beneficiary in this rise was Overseas Equity which rose from 24.8% in 2008 to 27.5% in 2009. UK Equity rose by 0.6% from 24.0% to 24.6% during the same period.

UK Bonds fell over the year from 30.0% to 26.5%. Within this sector UK Gilts fell the most with a reduction of 4.6%. Overseas Bonds, however, increased slightly over the year by 0.2% to 1.7%. Cash holdings rose by 0.4% over the year while Property holdings fell by 0.4%.

Looking at asset allocations trends over the last decade to 31 December 2009, equity holdings have fallen from 73.3% to 52.1%. Asset allocation in UK Equity has fallen by over a half during this period from 53.0% to 24.6%. Conversely, Overseas Equity has risen from 20.3% to 27.5%.

Meanwhile holdings in UK Bonds have more then doubled in the last 10 years from 11.3% to 26.5%. Overseas Bonds asset allocation has fallen from 4.6% to 1.7% while UK Index Linked holdings have risen from 3.7% to 11.2%.

Commenting on the changes in asset allocation trends, BNY Mellon’s Wilcock added: “Some of the long-term trends in asset allocation for UK pension funds continued in 2009, with schemes reducing further their allocation of UK Equity within Total Equity. Investment in corporate bonds increased to 18.7% of assets, while exposure to UK Gilts fell to only 7.6%."

Total Fund weighted average return for the year:

• weighted average return represents the total performance of the pension fund assets within our sample.
• The weighted average is used in preference to the simple unweighted average, which takes no account of fund asset size.

The performance analysis and other information in this press release are based on historical data and are intended for informational purposes only. Past performance is not a guarantee of future performance. This press release does not constitute investment advice, nor is it an offer or recommendation of any security, investment product, service or firm.

BNY Mellon Asset Servicing offers clients worldwide a broad spectrum of specialised asset servicing capabilities, including custody and fund services, securities lending, performance and analytics, and execution services.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 34 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $22.3 trillion in assets under custody and administration, $1.1 trillion in assets under management, services $12 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. Additional information is available at www.bnymellon.com.