The number of the largest 200 U.S. pension funds reporting the use of derivatives or short selling fell during the year ended Sept. 30, according to Pensions & Investments' directory of the 1,000 largest U.S. pension funds.
Of the largest 200 pension plan sponsors, 93 said they use derivatives or short selling, compared with 110 in the previous year's survey. (All numbers are as of Sept. 30.)
By category, numbers were down for stock options, bond options, stock index futures and fixed-income futures, while they were up for managed futures, swaps and short selling.
The dropoff for options and futures comes at a time when use of both exchange-traded and over-the-counter derivatives is booming.
In the current survey, 45 plan sponsors said they use stock options, compared with 55 the previous year; and 25 sponsors reported the use of bond options, while 43 did so last year.
Just 79 sponsors said they use stock index futures, compared with 87 in the previous survey, while 59 said they use fixed-income futures, compared with 69 a year earlier.
Swaps use rose, with 33 sponsors reporting their use, up from 30.
Eighteen sponsors said they use managed futures, up from 17; nineteen said they use short selling, also an increase from 17.
The numbers are affected in part by some big pension funds merging and new funds making the list.
Moreover, investment consultants said, the falling survey numbers don't necessarily reflect a downward trend for futures and options, but might be a result of either sponsors not wanting to publicize their use, or statistical aberrations.
Derivatives got more bad publicity last year when extreme leverage obtained through derivatives brought hedge fund manager Long-Term Capital Management LP, Greenwich, Conn., to the brink of collapse.
Given what happened to leveraged investors in 1998, plan sponsors might not be eager to let people know they use derivatives, even if they do so in a responsible fashion, said Stephen Nesbitt, executive vice president for Wilshire Associates Inc., Santa Monica, Calif.
Nonetheless, Mr. Nesbitt said, some sponsors have cut back on using derivatives.
Leslie Rahl, principal with Capital Market Risk Advisors, New York, said she hasn't seen signs indicating derivatives use is falling among pension plan sponsors.
In addition, the fact that more plan sponsors are reporting the use of swaps is in general a better indicator of derivatives use than is reported use of futures or options, Ms. Rahl said.
Setting up a structure for a plan sponsor to allow swaps transactions takes more time and effort than are needed for exchange-traded derivatives, she said.
If more sponsors appear to be using swaps, derivatives use might actually be growing; the dropoff in futures and options use might be a temporary situation based on market volatility, she said.
