A third of pension professionals polled by State Street believe the institutions they work for need to take on more risk to meet funding issues.

Out of 400 individuals surveyed, 36% said their firms have funding problems that require them to seek higher risk strategies that offer potentially stronger returns.

State Street, which refers to these schemes as “Return Hunters”, also highlights that 45% say the funds they work for are actively looking to de-risk, making them “Risk Cutters”.

The findings also reveal that the majority of Return Hunters plan to boost exposure to funds of hedge funds (62%) and real estate (57%) over the next three years, and half of this group plan to increase allocation to private equity.

The corresponding figures for Risk Cutters are 46%, 48% and 44% respectively.

Both groups share the same appetite for increasing their exposure to infrastructure, with 43% each planning to do this over the next three years. 

“Pension funds are battling to balance risk versus return to achieve better member outcomes. Both Risk Hunters and Risk Cutters need to master risk like never before,” said Oliver Berger, ‎head of asset owner solutions & strategic market initiatives, sector solutions EMEA at State Street. 

“Even those who want to add risk are looking to do so with minimum impact on the overall risk budget.”

“In order to achieve these goals, pension funds need to adapt their governance frameworks. Boards must empower the investment function to hunt for higher returns and to act quickly on new opportunities. 

"Governance processes must be improved to ensure objectives – both investment returns and improved member outcomes – are achieved within the fund’s risk threshold,” Berger added.