Public pension funds now have a higher equity allocation than corporate defined benefit and defined contribution plans, a new study shows.
As a result, public pension funds could gain even greater clout as shareholders, says economist Carolyn Kay Brancato, author of the study.
Private trusteed funds - primarily corporate pension funds - are investing their money more conservatively, reflecting the shift from professionally managed traditional pension plans to 401(k)-type retirement plans in which employees control the allocation of investments.
State and local pension funds have more than doubled their share of equity holdings - to 47.1% as of Sept. 30, 1994, from 22.3% in 1980, according to Ms. Brancato's latest study.
But corporate employee benefit funds scaled back their stock holdings to 44.4% of assets as of Sept. 30, down from 46% in 1980. (The numbers are for defined benefit and defined contribution plans and include company stock options in defined contribution plans.)
Public pension funds also continued to have a greater proportion of equity holdings in their portfolios in the first nine months of 1994, 47.1%, than corporate pension funds, which had 44.8% of their total assets invested in stocks.
That translates into public pension funds controlling 9.1% of all outstanding domestic and international shares, up from 8.3% at the end of 1990. Corporate pension funds, on the other hand, now control 18.2% of outstanding equity, down from the 20.9% they held in 1990.
What's more, public pension funds generally tend to retain voting power for shares they hold in their portfolios, while mutual fund managers and money managers typically vote shares owned by individuals through defined contribution retirement plans.
"What we are seeing is increased clout that the publics have in the corporate governance arena," said Ms. Brancato. Her report was published in partnership with The Victoria Group Inc., a Fairfax, Va., management consulting firm.
The aggressive move by public pension funds into equities also is significant because corporate pension funds, while still larger in absolute terms, are growing at a much slower pace. Private pension funds have taken a noticeable hit in recent years from corporate restructurings - employers have laid off millions of workers and made huge lump-sum pension distributions.
Overall, institutional investor assets shot up to $9.5 trillion as of Sept. 30, 1994. That's a 14.5% increase from the $8.3 trillion held by institutions as of Dec. 31, 1992, the date of Ms. Brancato's last study, and an increase of 3.3% from the $9.2 trillion they controlled at the end of 1993. Ms. Brancato's latest study also includes data for 1993.
Of the total held by institutional investors, pension funds had $4.57 trillion as of Sept. 30, 1994, up less than 1% from the $4.53 trillion they held at the end of 1993 but a significant 11.5% increase from the $4.1 trillion in holdings at the end of 1992.
But state and local pension funds were responsible for some of that growth, increasing to $1.18 trillion in assets as of Sept. 30 from $1.12 trillion at the end of 1993 and $955 billion at the end of 1992.
Corporate pension fund assets actually fell in the first nine months of last year - to $2.51 trillion from $2.57 trillion at the end of 1993, the Brancato study estimated.