Poll Finds More Pensions Using Investing Alternatives

August 25, 2011 (PLANSPONSOR.com) – An SEI Quick Poll shows a significant increase in the percentage of pension portfolios investing in alternatives when compared to the previous three years of polling. 

The fourth annual Quick Poll was completed by 106 pension executives overseeing assets ranging in size from $25 million to over $1 billion. 

According to a press release, this year’s poll shows nearly eight out of 10 (78%) pension executives surveyed reported their organization had some allocation to alternatives in the pension portfolio, compared to 51% in 2008, 53% in 2009 and 65% in 2010. However, while more plans in 2011 appear to be using alternative investments, allocations greater than 10% of the overall portfolio appear to have decreased in the past year. In 2010, 77% of respondents with more than $300 million in pension assets allocated at least 10% in portfolio to alternatives, compared to only 42% of pensions of the same size this year.

Of the executives surveyed, 46% said the plan’s funded status was 90% or better. When asked about the future direction of pension plans, 52% of the pension executives polled said even if the pension were fully funded, they would not look to terminate the plan. The results also indicate a correlation between well-funded plans and the long-term strategy of the plan. Of those executives with fully funded plans, 76% reported they would not terminate the plan if they could, compared to the 65% of plans less than 80% funded who said they would terminate immediately if they could.

The poll found wide discrepancies in regard to use of Liability Driven Investing (LDI) strategies. Notably, 57% of the respondents with pensions greater than 90% funded have no allocation whatsoever to LDI strategies. Of those from the group using LDI, 70% have at least 40% of the overall pension portfolio in LDI.   

“Alternative investments continue to be integrated into pension portfolios as another channel for mitigating risk, while providing additional return apparently. However, ongoing volatility of interest rates continues to put liability risk as a primary concern for plan sponsors,” said Jon Waite, director, investment management advice and chief actuary for SEI’s Institutional Group, in a press release. “The poll results show numerous inconsistencies in the use of various investment strategies, including alternatives, over the past year as plan sponsors appear to be uncertain of what’s most appropriate. This might also explain an increased interest in outsourcing as now, more than ever, plan sponsors need to maximize the benefits of external resources and the expertise they provide.” 

In regard to the trend toward an outsourced approach, nearly half of all participants (47%) said their organization would evaluate an outsourced approach to investment management when they next make a change. Of those organizations open to evaluating outsourcing, 43% said they plan to issue an RFP for these services by the end of 2013. Larger plans expressed a significant interest – of the plans with more than $300 million in assets, 41% said they would evaluate an outsourced model.  

For a copy of the complete survey results, please e-mail seiresearch@seic.com.