In the midst of one of the more tumultuous market
periods in memory,
convened its third annual Defined Benefit Investment
Photography By Chris Ramirez
Over the three-day event, more than 120 plan sponsors,
consultants, and providers gathered to hear from experts
and to exchange ideas with peers on the unique challenges
confronted by defined benefit plans. Topics ran the gamut
from regulatory and legislative to accounting and
investments; and from the nuts and bolts of securities
lending, short-extension strategies, and LDI, to the macro
concerns of "surviving crisis."
In this special excerpt, we provide coverage of two of
the sessions: the consulting dynamic, and a Washington
Update—which turned out to be remarkably prescient. For
those of you not able to attend last year's event, we
hope you will mark your calendars now for PLANSPONSOR's
2009 Defined Benefit Investment Summit this November.
The Consulting Dynamic
In light of market volatility, defined benefit
consultants are encouraging clients to rebalance asset
allocation in some way or another—and, in the long term,
they see asset allocation continuing to change.
Steve Case, Principal of Mercer Investment Consulting,
told attendees at
's Defined Benefit Investment Summit that his firm went to
clients with a serious statement about considering
rebalancing, with the suggestion of maintaining a
higher-than-normal level of cash for future benefits
payments, "given the difficulty of all of the markets
that we're going through right now."
Julia Bonafede, Senior Managing Director of Wilshire
Associates, said her firm also is encouraging clients to
look at rebalancing and higher cash levels—while being
mindful of transaction costs and how much to rebalance. She
suggested that a gradual rebalancing process could be
optimal, but both Case and Bonafede mentioned the yet
unanswerable problem of valuing private equity. Meanwhile,
there is opportunity for DB plans, particularly in
equities, Bonafede said. "On the brighter sideâ€¦it's a very
attractive time in the long term," Bonafede said.
Richard Charlton, Chairman and CEO of New England
Pension Consultants (NEPC), said it is essential for funds
to return to their original equity target, noting that, "if
you don't rebalance, the market will do it for you." He
also pointed to opportunity, as the discount rate for
ERISA-governed plans is at an all-time low and, while he
said that will come back up, it gives plans an opportunity
"to hedge against that likelihood going forward."
Robin Pelish, CEO of Rocaton Investment Advisors,
offered a slightly different perspective about rebalancing,
noting that Rocaton is not suggesting clients change their
investment policies at all in response to the market
volatility but, at the same time, she suggests plans
rebalance through cash flows rather than buying or selling.
"We're just not encouraging our clients to take those kinds
of transaction costs. Once volatility moderates, we
certainly recommendâ€¦they go back to their normal
rebalancing policy," she said.