Greenwich study: Corporate pension plans' funded status affects investment decisions

The funding ratio of corporate defined benefit plans drives their asset allocations, with less well-funded plans opting for less fixed-income exposure, according to a study from Greenwich Associates.

According to Greenwich's 2012 U.S. Investment Management Study, among the 12% of all U.S. corporate defined benefit pension plans that have funding ratios of 105% or higher, those plans allocate 61% to fixed income.

Among plans with funding ratios of less than 75%, they allocate only 31% to fixed income.

“The results … suggest that among all but the best-funded U.S. corporate pension plans, derisking remains largely aspirational,” said Goran Hagegard, consultant at Greenwich Associates, in the study.

The study also states that public pension funds in 2012 were more willing than during the previous year to shift their assets into riskier asset classes and to search for more active managers with the potential to deliver more alpha.

According to the study, the average allocation to active strategies by U.S. public pension funds increased to 61% from 52%, while the average allocation to passive strategies dropped to 38% from 48%.

Public funds in 2012 also moved equity assets to international equities from domestic equities. The average allocation to domestic equities fell to 27% in 2012 from 30% the previous year, while international equity remained at 22%.

The study is the result of interviews with 506 corporate funds and 210 public funds conducted from June through September 2012.