According to a press release, the investment policy establishes a 30% target asset allocation for equities and other non-fixed income assets, and a 70% allocation to fixed income, permitting an allocation range of plus or minus 5%. According to the announcement, the investment policy objective is to maximize total return within a prudent risk framework that is informed by PBGC’s fixed obligations and asset composition of potential trusteed plans.
The PBGC board had approved a much more dramatic shift in 2008 – a policy change that called for an allocation of just 45% of the PBGC’s portfolio to be invested in fixed-income, a matching 45% to equities, and the rest to alternative investment classes, such as private equity (see PBGC Makes Big Shift to Stocks, Alternatives, Millard Defends PBGC Investment Policy Change). That shift stood in sharp contrast to the agency’s previous policy, which set an equity investment target of just 15-25%, largely in line with the new policy.
In fiscal 2009 the PBGC Board established temporary guidance pending a full review of investment policy, and since that time had been implementing the interim guidance, which provides that PBGC will prudently rebalance the portfolio and reduce PBGC’s investment in public equities to no more than 26.5%, the amount as of March 31, 2009.
According to the agency’s latest annual report for the fiscal year ended September 30, 31.1% of the PBGC’s portfolio was already in equities, though that was down from approximately 37% at the end of the prior fiscal year.
The PBGC Bylaws require the board to review the investment policy at least every two years and approve an investment policy at least every four years. According to the PBGC, the investment policy was developed “after an extensive review process that included consultation with outside investment and finance experts, the PBGC Advisory Committee, industry and stakeholder groups and the PBGC Director and staff”. The PBGC said the review also included “comprehensive analyses of the impact of a range of economic, portfolio, and demographic risks on PBGC’s liabilities”.
PBGC assets are divided between a revolving fund for premium revenue, and a trust fund for assets acquired from failed pension plans and recoveries from their sponsors. Short-term holdings in the revolving fund are managed internally by PBGC staff, with all other discretionary investments managed by professional asset management firms.
The PBGC Board of Directors is comprised of the Secretaries of Labor, Treasury, and Commerce, and is chaired by the Secretary of Labor.
The Investment Policy Statement is posted on the PBGC web site at www.pbgc.gov/documents/IPS-May2011.pdf.