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White papers

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The 2012 Cutwater Asset Management Defined Benefit Pension Plan Survey
Firm: Cutwater
Author: David R. Wilson, CFA and Kimberlee Lisella - Customized Strategies Group
Overview: The goal of this survey was to gain insights into the investment strategies, risk tolerances and intentions of pension plans as they face market uncertainty, low interest rates and low funded ratios. We also inquired about their willingness to adopt a liability driven investing approach and the thought process around implementing, waiting or shunning the strategy altogether.

Developing a LDI Mindset: A Guide to Pension De-Risking
Firm: Cutwater
Authors: David R. Wilson, CFA and Kimberlee Lisella - Liability Driven Investing Group
Overview: Today, both corporate and public pension plans are beginning to change their mindset. While pension plans are still generally invested in equity and alternative "growth" strategies, change is in the air. The purpose of this paper is to provide a guide for both corporations and public entities who are evaluating LDI as a solution for their pension plans. We will frame the risk that both corporate and public plans continue to take, recommend executable strategies that fit both plan types and describe how to implement these strategies.

Extending Fixed Income Duration - Which Strategy is For You?
Firm: Cutwater
Authors: David R. Wilson, CFA, Kimberlee Lisella - Customized Strategies Group and Jesse L. Fogarty, CFA - Portfolio Management
Overview: So, you're a defined benefit pension plan sponsor that has decided to take a step towards liability driven investing by extending the duration of your fixed income allocation to a long duration total return strategy. Assuming you are not ready to move to a fully customized asset allocation framework, a key question you need to ask is, should you invest in a strategy that is benchmarked off the Barclays Long Credit Index ("LC Index") or the Barclays Long Government/Credit Index ("LGC Index")? This paper explores the advantages and disadvantages of both strategies in an asset/liability context.

Pension Review "First Take:" Highlights, Challenges and Changes for 2012
Firm: Goldman Sachs Asset Management
Author: Michael A. Moran, CFA, Pension Strategist, GSAM
Overview:Corporate defined benefit (DB) pension plans are facing challenges from multiple angles. While funded levels have begun to recover in early 2012 given the rise in equity markets and long-term interest rates, they started the year at depths as low as those seen in late 2008 during the height of the financial crisis. Low funded levels are pressuring some plan sponsors from a balance sheet, income statement and cash flow perspective, increasing the attention paid to pension issues from investors, bond holders, rating agencies and, of course, plan sponsors themselves. In response, some sponsors are proactively changing plan design, contribution policies and financial reporting, while fiduciaries are reconsidering investment strategy and asset allocation. Other regulatory and accounting changes may be thrust upon the pension landscape. Our "First Take" review of some of the recently filed pension information for 50 companies with some of the largest DB plans in the United States confirms many of these challenges and changes. Based upon this review, as well as our conversations with plan sponsors, we highlight seven themes that we believe will be prevalent throughout the US corporate pension community during 2012.

Get Funded, Stay Funded - 2012: The Evolution of Pension Risk Management
Firm: ING Multi-Asset Strategies and Solutions Group
Author: Thomas Applegate, CFA, Client Portfolio Manager
Overview: Unfunded defined benefit pensions continue to be an important theme for both corporate and public plan sponsors in an environment where changes in bond yields and uncertain investment returns create or aggravate volatility in pension funding status. Even with pension funding relief passed in late 2008, and global equity markets returning approximately 13% annualized in the three years ending December 31, 2011, many plan sponsors continue to face high contribution requirements and stubborn funding ratios, a powerful reminder that misallocated pension assets and declining markets can place staggering cash burdens on sponsoring entities.

Expansion of the Russell Stability Indexes: the global series
Firm: Russell Investments
Author: Mark Thurston, Head of Global Equity Research, Investment Division
Overview: In 2010 Russell Indexes introduced the Russell Stability Indexes for the U.S. market. In September 2011, Russell introduced a series of like indexes for global markets. All constituents of both series identify and measure an important third dimension of style - stability. The global series, like its U.S. counterpart, divides equity markets into defensive and dynamic components. Stability indexes thus lend flexibility to benchmarking managers and help increase investors' understanding of what has driven results. Stability indexes also can be effective tools for gaining direct passive exposure to potential compelling risk and return characteristics, either tactically or strategically. This paper provides an introduction to the global series of Russell Stability Indexes.

International small cap: Defining a promising asset class
Firm: Russell Investments
Author: Mat Lystra, Senior Research Analyst
Overview: The benefits of international equity portfolio diversification have been well documented. Until recently, however, most investors worldwide have concentrated exclusively on large cap names from developed countries. This focus on large, often multinational companies with strong brand recognition benefited investors as they began to reduce the home country bias within their portfolios. Unfortunately, as often happens when a market sector, or individual company becomes widely followed, the prospective benefits to be gained - risk reduction, greater return potential, or both - decline. Macro global factors common to developed large cap companies now explain much of their performance, while increased analyst coverage and more transparent reporting have reduced information inefficiencies. All of this led to more highly correlated performance and lessened the magnitude of the potential benefits investors were seeking by diversifying their portfolios away from a single country or region.

Introducing a new standard in LDI benchmarking: The Barclays-Russell LDI Index Series
Firm: Russell Investments
Author: Martin Jaugietis, CFA, Director - Head of LDI Solutions; Jeff Hussey, CFA, Global Chief Investment Officer - Fixed Income; Justin Harvey, Asset Allocation Strategist
Overview: Many U.S. defined benefit pension plan sponsors have now taken at least first steps toward adopting liability-driven investment (LDI) strategies by lengthening the durations of their fixed income portfolios. Often they have done so by investing in products benchmarked to the Barclays Long Credit or Long Government/Credit indexes or by adding Treasury STRIPS, interest rate swaps or Treasury futures. The Barclays-Russell LDI Index Series are six investable fixed income indexes, based primarily on corporate bonds, which are specifically designed to hedge the interest rate sensitivity of pension liabilities discounted by use of a high-quality corporate bond yield curve.