NORWALK, Conn. A new pension accounting proposed rule might drive corporate pension funds away from illiquid and risky investments such as hedge funds, some experts believe.
The Financial Accounting Standards Board, Norwalk, last week approved issuing a proposal to require a more detailed breakout of corporate pension fund asset allocations, including derivatives, hedge funds and other alternative investments, to obtain a better assessment of concentrations of risk.
FASB officials expect to issue the proposal, an amendment to Financial Accounting Standard 132 (revised), by March 7, followed by a 45-day public comment period.
We are rewriting the rule to make it clearer how asset categories should be disclosed, said Philip R. Hood, an assistant project manager overseeing the proposal. It would give more clarity to the types of investments held in the plan.
Current asset allocation categories are equity, debt, real estate and other, and are disclosed in a note to the financial statements in corporate annual reports.
But some experts worry that increased disclosure will constrain corporate executives willingness to use alternative investments.
It further narrows the ability of plans to effectively manage long term vs. short term, said Cynthia Steer, managing director and chief research strategist at Rogerscasey Inc., Darien, Conn.
If adopted, the proposal could lead to corporate pension funds investing more conservatively to reduce exposure to risky or illiquid assets, Ms. Steer said.
Diane Garnick, investment strategist in New York for Invesco Ltd., said the proposal also would require more heavily prescribed valuation rules. These range from publicly traded securities that can be valued by daily market prices to estimating prices for less frequently traded public securities or for private assets, whose values are more uncertain, Ms. Garnick said.