Money managers are striking pay dirt with strategies that promise positive returns whether major stock and bond indexes are waxing or waning.
"The world is in flux right now," said Bill Schneider, a principal with DiMeo Schneider & Associates LLC, a Chicago investment consulting firm. Turbulent markets have left pension funds hungry for less volatile returns, and money managers will offer absolute-return products to meet that demand as well as to reap fatter fees than traditional products offer, he said.
Some see the weak outlook for U.S. capital markets behind the pickup in demand and supply of non-traditional products. Pension funds wouldn't be eyeing new strategies to this extent if expected returns from traditional strategies hadn't been in question, said John Wilson, executive vice president for institutional business at Pacific Investment Management Co., Newport Beach, Calif.
Others see less cyclical factors at work as well.
Ratings agencies now consider pension obligations when rating corporate debt, and the Financial Accounting Standards Board may impose a mark-to-market rule for pension assets in place of the current five-year smoothing convention, exposing corporate balance sheets and income statements to increased volatility, said Jeffrey Saef, senior vice president at Putnam Investments Inc., Boston.