GLENDALE, Calif. — Nestle USA Inc. pension officials expect to leverage the plan's fixed-income portfolio, transferring a chunk of its risk budget to dullish bonds from sporty equities.
The net effect will enable the $2.3 billion defined benefit plan to get more bang for its buck from its bond portfolio, as well as to provide greater diversification and better manage the fund's assets in line with its liabilities.
The move, part of a massive overhaul of the Glendale-based pension fund that started last year, uses the latest financial engineering techniques to create separately optimized alpha and beta portfolios. The goal of the revamp is to reduce the fund's overall volatility levels while aiming for a healthy 8.5% target return (Pensions & Investments, Nov. 29, 2004).
To generate alpha, fund officials hope to double the fund's alternatives exposure to 57% from 28%, said Manfred Lehmann, Nestle USA's vice president and treasurer.
In October, Nestle's pension committee will consider: boosting commodity futures to 10% of total plan assets from 4%; investing up to 10% of assets in market-neutral strategies from the current 2%; and nearly doubling real estate exposure to 14% from 8%, he said.
Currently, the fund also has 10% of assets invested in hedge funds of funds, 2% directly in hedge funds, and 1% in timber. In addition, Nestle's committee previously approved upping the fund's private equity exposure to 10% from the current 1%.