Plan Sponsors Increasingly Using Active Extension Strategies

May 15, 2008 ( - Active extension strategies - relatively new to institutional investors - are already in use or are under consideration by more than half of public defined contribution plans and one-third of corporate plans, a new research study found.

According to a press release, the research sponsored by RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., and conducted by PLANSPONSOR magazine found 72% of public plan respondents claim to be “somewhat” or “extremely” knowledgeable about active extension, compared to just 42% of corporate plan managers. Active extension strategies is the umbrella term for 130/30, 120/20, and other such fund structures that allow enhancement of long mandates to also hold short positions, the release explained.

Fifty-one percent of the public plan survey respondents indicated they are using, seriously considering, or evaluating active extension strategies, and 31.5% of corporate plans said the same.

Standard deviation, beta, and tracking error are the most common risk benchmarks used by respondents. In addition, the survey results show that short-selling track records are considered more important in deciding whether to use a manager for active extension, and just 35% of plan managers think long-only investing skill and success can translate to active extension strategy success.

“This survey provides further validation that active extension strategies are becoming an integral component of defined benefit plans,” said Chris Keating, head of institutional sales and client services at RiverSource Investments, in the release. “With only 14% of plans citing that they think these techniques are just a passing trend and nearly 41% of plans citing that they would allocate 5 to 30 percent of their portfolio to active extension, we view these strategies as a real source of growth potential over the next few years.”

A total of 119 firms participated in the study, which was conducted via a Web-based, anonymous questionnaire. An article on the survey is available in the May issue of PLANSPONSOR .

A Webcast for institutional investors on the survey results is scheduled for June 3 at 12 p.m. EDT, featuring Laton Spahr, portfolio manager of RiverSource 120/20 Contrarian Equity Fund, and moderated by Charles Ruffel, CEO of PLANSPONSOR .