Running the Fund | Published in January 2009

The View from the Summit

In the midst of one of the more tumultuous market periods in memory, PLANSPONSOR convened its third annual Defined Benefit Investment Summit.

By PS | January 2009
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In the midst of one of the more tumultuous market periods in memory, PLANSPONSOR convened its third annual Defined Benefit Investment Summit.

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 PLANSPONSOR '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 side…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 recommend…they go back to their normal rebalancing policy," she said.