Almost two-thirds of multinational companies now take a regional or global approach to setting investment objectives and strategy for defined benefit pension plans, and more are expected to do so, according to Mercer’s Multinational Survey released today.
By 2010, 85% of the multinational companies surveyed would implement their investment strategies from a cross-border perspective. In 2004 when the survey was last conducted, only 46% of the respondents took such an approach.
Among those regional or global approaches, 65% used preferred providers in investment management in 2008, compared to 32% four years earlier. By 2010, 73% estimated they would use preferred providers. Risk management has also emerged at the forefront, with 80% of the respondents with pension plan risks across multiple countries planning to address these risks on a global basis.
The use of derivatives to hedge some of the risks is also expected to rise. In 2008, 39% used interest-rate swaps, 20% used inflation swaps and 6% used longevity swaps. By 2010, 44% are likely to use interest rate swaps, 42% are likely to use inflation swaps and 28% are likely to use longevity swaps.
About 56% reduced their equity allocation in 2008 and 64% increased their fixed-income exposure.
“The fact that nearly 50% of companies would run their plans on a fully de-risked basis shows how attitudes to pension risk have changed,” David Fogarty, principal at Mercer’s financial strategy group, said in a news release about the survey.
Mercer surveyed 49 multinational companies with a combined $437 billion in assets under management; most of the companies were based in the U.S. and Europe.
