Plan sponsors are unrealistic in their portfolio return expectations, according to officials of Greenwich Associates, who interviewed executives for their 1996 investment management study.
Fund officials are expecting returns for the S&P 500 of 9.8% a year, compounded for the next five years, which ``represents a breaking away from history the likes of which we've never yet seen,'' said Charley Ellis, a partner at Greenwich, in the survey.
Their expectations are similarly rosy for bonds. Plan sponsors anticipate a compound annual 7.5% return for actively managed bonds over the next five years vs. average inflation of 3.5%, for a real rate of return of 4% - optimistic in historical terms.
The return expectations for international equities are even greater 10.5% a year for five years - an unlikely prospect given the current state of the Japanese economy plus the record highs of U.K. and several European bourses, the survey said.
To enhance returns, pension executives are ``accepting more risk and experimenting.'' In bonds, that means extending portfolio durations; in stocks, they are trying their hands at market timing and considering alternative investments.