Asset Allocation Diverging Among DB Corporates, Private Sponsors

A news release about the latestPyramis Pulse Poll said corporate sponsors have continued shifting their asset mix to fixed income, including long bond, corporate bond and high yield, while their public plan counterparts are opting instead to continue moving assets to non-U.S. global, emerging markets equity and alternative strategies, such as hedge funds and hedge fund of funds.

The survey found almost half (48%) of public plans are below their target ranges for equity allocations, and that 42% of the public plans intend to address that situation by rebalancing existing assets back to their pre-set ranges.

However, as seen with last year’s survey, public plans will be taking a more global view to their reallocation decisions: 38% indicated they believe pension allocations will become more global (both fixed income and equity) over the next decade, the announcement said.

Downturn’s Turn

According to the announcement, both corporate and public plan sponsors have apparently not been swayed in their strategic long-term asset allocation view by the economic downturn.

“Last year we found that plan sponsors had concluded their formal assessments of the merits of freezing or closing their DB plans, and instead were focused on taking a long-term view of the plans’ value to employees and the investment approaches that will enable them to meet obligations,” said Patrick J. Mc Nelis, executive vice president, Global Distribution & Client Service. “Today, after a period of substantial financial market volatility that has impacted the funding status of plans, we find that sponsors are standing steadfast with that focus.”

When asked about their top concerns, among corporate DB plans, 38% cited their current funding status and 30% mentioned volatile markets. For public plans, 34% listed current funding status and 30% pointed to a low-return environment as top concerns. That compares to last June's survey when corporate plans cited volatility as a top concern, while public plans' top concern was the low-return environment.

In addition, the survey showed that current and potential market conditions — especially a narrowing of credit spreads — are sparking interest among corporates in credit?based fixed income strategies, especially within liability driven investing (LDI)strategies. Among the 27% of corporate plans using LDI strategies, nearly half (46%) are implementing LDI by extending duration of existing fixed?income assets and 13% said they are using credit?based fixed?income strategies, such as corporate bonds.

The Pyramis Pulse Survey was designed by Pyramis Global Advisors and was executed in association with Asset International, Inc., publisher of PLANSPONSOR magazine andPLANSPONSOR.com .

It was conducted between April 13 and April 19, 2009 among CIOs, treasurers and executive directors from 233 of the largest DB plans in the United States (154 corporate, 79 public).

A report on the survey is available by writing to pyramis@pyramis.com .