IDEAS home Printed from
   My bibliography  Save this paper

Credit Ratings and UK Defined Pension Fund Portfolio Values


  • Martin Sullivan

    () (UWE, Bristol)


The emergence, in recent years, of large financing deficits in the portfolio values of UK DB pension funds, along with changes in the way such funds are valued by actuaries, has led fund managers to increase the weighting of fixed income securities, including corporate bonds, relative to equities in the portfolios they manage. Since bond prices tend to be less volatile than those of equities, greater bond holdings are attractive in the context of an accounting framework which now values funds on the basis of the current market values of the assets they hold and does not permit the smoothing of asset values over time. When selecting the fixed income securities to be held in the portfolios they manage, fund managers will have regard to the credit ratings assigned to corporate bond issuers. Through a consideration of some key credit rating metrics, and a survey of some relevant literature, this paper seeks to shed light on the ways, and the extent to which, the actions of the credit rating agencies may impact upon the values of defined benefit pension fund portfolios. The paper is organized as follows. Section i provides a general introduction to the theory and practice of credit rating and notes the relevance of credit ratings to defined benefit pension funds. Section ii presents a discussion of pension fund portfolios and their asset allocations. Sections iii and iv analyse the significance of credit ratings and the behaviour of rating agencies for defined benefit pension funds. Section v draws some tentative conclusions and offers some suggestions on the direction that future research on this topic might take.

Suggested Citation

  • Martin Sullivan, 2009. "Credit Ratings and UK Defined Pension Fund Portfolio Values," Working Papers 0909, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  • Handle: RePEc:uwe:wpaper:0909

    Download full text from publisher

    File URL:
    File Function: First version, 2009
    Download Restriction: no

    References listed on IDEAS

    1. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-752, June.
    2. ., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 77-93, June.
    3. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    4. Caton, Gary L & Goh, Jeremy, 2003. "Are All Rivals Affected Equally by Bond Rating Downgrades?," Review of Quantitative Finance and Accounting, Springer, vol. 20(1), pages 49-62, January.
    5. Blake, David, 2000. "Does It Matter What Type of Pension Scheme You Have?," Economic Journal, Royal Economic Society, vol. 110(461), pages 46-81, February.
    6. Gonzalez, F. & Haas, F. & Johannes, R. & Persson, M. & Toledo, L. & Violi, R. & Zins, C. & Wieland, M., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, pages 53-76.
    7. John Y. Campbell & Glen B. Taksler, 2003. "Equity Volatility and Corporate Bond Yields," Journal of Finance, American Finance Association, vol. 58(6), pages 2321-2350, December.
    8. Jeffery D Amato & Eli M Remolona, 2003. "The credit spread puzzle," BIS Quarterly Review, Bank for International Settlements, December.
    Full references (including those not matched with items on IDEAS)

    More about this item


    credit ratings; pension funds; portfolios;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uwe:wpaper:0909. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Felix Ritchie). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.