GREENWICH, Conn. — Smaller corporate pension funds are falling further behind their larger peers in adopting new investment strategies, a new survey from Greenwich Associates shows.
Only 8% of smaller corporate plans surveyed by Greenwich are considering significant changes to their asset allocation over the next three years. That pales in comparison to large corporate funds, where 40% say they will make major changes; and endowments and foundations, where 60% are planning changes by 2010.
“Normally, small funds look to the big funds to see what they're doing. That doesn't appear to be happening,” said Rodger Smith, a managing director at Greenwich Associates who analyzed the results.
Smaller plans — defined in the survey as plans with assets between $250 million and $500 million — are also slower out of the gate to adopt liability-driven investment strategies.
Only 40% of smaller funds have discussed LDI with their investment consultants, only 20% have discussed LDI with their actuary or accountant and only 12% have talked to their existing managers about LDI strategies.
For plans with more than $500 million in assets, 52% of executives have discussed LDI with their consultants, 31% have discussed the strategy with actuaries or accountants and 38% had discussed LDI with their current investment managers.
Mr. Smith noted that small corporate pensions have been slow to move into alternatives, including hedge funds, private equity, real estate and venture capital, and have not made the significant shifts to international equity that larger plans have made. Mr. Smith is suggesting those small plans make the necessary changes to get exposure to assets classes that are not highly correlated to the U.S. equity market, where lower returns are expected over the next five years.
According to the study, small plans allocated 47.5% of assets to U.S. equity in 2007, 29.4% to fixed income, 14.5% to international equity, 2.6% to real estate, 0.6% to private equity and 2.6% to hedge funds; the remainder was categorized as “other.”
Greenwich data shows that large corporate funds allocated 39.6% to U.S. equity, 28.9% to fixed income, 20.2% to international equity, 3.3% to real estate, 3.8% to private equity, 2.9% to hedge funds and the rest to “other.”