Asset allocations: past, present and future

Published: November 29, 2012

This presentation will review the changes P&I has seen in pension fund asset allocations, why those changes occurred and a likely direction for the future. The changes in the past five years have been dramatic. Among corporate defined benefit plans, the changes are arguably more dramatic than at any time since railroads created the first pension program in the 19th century. A significant amount of the statistics presented here come from P&I’s annual plan sponsor survey. We have electronic records to the early 1990s, but dusted off print archives to show information to the mid-1980s.

U.S. corporate pension funds

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This slide looks at several distinct periods in the evolution of corporate DB plans. The mid-1980s and early 1990s showed some conservatism and reflected high short-term interest rates with an almost 7% allocation to cash.

The late 1990s reflected the belief that public equities could continue to deliver double-digit returns year-in and year-out. There were numerous plans with allocations to equities of more than 80%. The all-time high probably goes to Kohler, whose DB plan in 1999 had a 96% allocation to equities split evenly between domestic and international equity.

After the tech bubble and before the financial crisis, there were only minor changes, with alternatives pulling more assets from listed equities.

Since the financial crisis, there has been a dramatic change in the allocation to fixed income and alternatives, and a dramatic decrease in the amount of listed equities in the typical corporate DB plan. Listed equity allocations dropped 1,600 basis points while fixed income picked up 900 basis points and alternatives increased 700 basis points.
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