More U.S. corporate pension plans are investing in alternative investments, according to an SEI survey of plan executives, with 65% saying they have money invested in those assets, up from 53% in 2009 and 51% in 2008.
Eighty-eight percent of the 85 respondents said controlling funded status volatility was their top challenge. Other challenges include improving funded status (85%), creating a long-term pension strategy (45%), stress-testing the portfolio (33%) and defining fiduciary responsibilities for trustees and investment consultants (32%).
The most common alternatives strategies used were real estate, at 77% of those invested in alternatives; private equity, 54%; hedge funds of funds, 47%; and single-manager hedge funds, 30%.
Jon Waite, director, investment management advice and chief actuary for SEI’s Institutional Group, said in a telephone interview that the rise in alternatives was expected, but it was somewhat surprising to see more allocations to private equity than hedge funds.
“Private equity has that long lockup period (up to 10 years for some) that puts some restrictions on your ability to (get out of the strategy) … and use other risk-mitigation strategies.
Mr. Waite said he also was surprised to see only 33% of respondents have an LDI strategy in place.
“Given the focus in the industry on LDI and the focus on all the interest-rate volatility and market volatility, I probably would have expected that to be higher,” he said, noting that low interest rates are probably keeping many from enacting an LDI strategy.