NEW YORK — General Motors Corp.’s shift in asset allocation, which will move roughly $24 billion into bonds, could give impetus to other corporations to follow suit, as a changing pension environment could have more investment officials focused on managing the liability side of their portfolios moving forward.
“It’s the wave of the future,” said Nancy Everett, president and chief executive officer of General Motors Asset Management, New York. “People are taking interest rate risk into consideration more than ever.”
Last week, General Motors revealed in its annual report that it has allocated 20% of its $101.4 billion in U.S. pension assets to global fixed-income strategies, reducing its global equity exposure by the same amount. Its new asset allocation is 52% global bonds, 29% global equities, 11% alternatives and 8% real estate.
At the same time, the company also said it had lowered its expected long-term annual return assumption by 50 basis points to 8.5%.
The fixed-income move, Ms. Everett said, was largely designed to preserve the pension fund’s $17.1 billion surplus and significantly lower the volatility in its U.S. defined benefit plan’s portfolio.
“People have started to realize that one of your biggest risks is not the impact of equity market risk on your assets, but the impact that the changes in interest rates have on the liabilities,” she said.
Ms. Everett said that given its surplus, plus an imminent move in the corporate pension world toward mark-to-market accounting, GM officials concluded they didn’t need a high level of volatility in the pension fund’s portfolio.
“Preserving that surplus has become one of our top priorities.”
‘Creative ways’
Ms. Everett said she could not discuss specific investment strategies GMAM has employed as part of the change in asset allocation. But she did say GMAM officials are looking at “creative ways to get beta exposure, while continuing to add excess returns from alpha-generating strategies,” which could include liability-driven investments and portable alpha strategies.
She said GMAM introduced hedging strategies into its U.S. pension plan several years ago to reduce the liability risk, and it has employed swaps and other types of “creative strategies” to introduce duration. It has also employed a significant number of alternative strategies, including absolute return, to generate alpha.
According to the annual report, investment executives will rely more on fixed-income strategies and “place greater emphasis on investment manager skills than on general market returns to produce expected long-term returns, while employing various risk mitigation strategies to reduce surplus volatility.”
GMAM manages 10% to 15% of GM’s pension assets internally, and Ms Everett added that the new asset allocation will not affect this balance.
Ms. Everett said the shift in strategy was not a market-timing move and was not in response to the increased volatility in the global equity markets in recent weeks.
“There is an apparent change in the way people think about pension fund obligations now,” she added. “Pension fund management continues to become more of a risk management exercise."
