S&P 500 companies pension plans are expected to buy between $100 billion and $150 billion in stocks before the end of 2009 to get back to their target allocations, which average around 55% equities, according to a UBS investment research report.
The plans actual allocations stood at 46% at the end of 2008, and UBS estimates that current equity allocations are averaging 40%.
Saying pension executives face the most difficult decision of (their) careers, the report noted that while further losses will infuriate sponsors, if the plans remain underweight and there is a market rally, the cost would be high.
We think big plan sponsors are less interested in emerging equity markets and alternative investments such as real estate, private equity, hedge funds, commodities, etc., the report said. We think a back-to-basics investing strategy of long-term investment-grade corporate bonds and large-cap mature equity market stocks seems to be gaining favor.
UBS estimates S&P 500 companies have an aggregate pension deficit of around $425 billion, a 34% jump from the $317 billion deficit the companies had at the end of 2008.