U.S. corporate pension plans are shifting their assets into derisking liability-matching strategies to reduce volatility, particularly a “dark horse” strategy, mostly at the expense of domestic equity allocations, according to a new survey by Aon Hewitt.
Among derisking strategies, the “dark horse” strategy of dynamic investment policies has surpassed liability-driven investing, the previous favorite, noted a report, "Global Pension Risk Survey 2011."
By 2010, 21% of plan executives surveyed had already adopted some form of dynamic investment policy, up from 15% in 2009, the report said. In 2011, 29% of sponsors expect to use a form of dynamic investment policy.
“Overall, survey results show a greater awareness of pension risk, an understanding of the capabilities and limits of the available risk management tools,” according to a report on the survey results.
Among the findings:
• 38% of plan executives reduced their exposure to domestic equities, and the same percentage expect to do so in 2011;
• 4% expect to increase domestic equity exposure;
• 32% expect to increase allocation to long-duration bonds, 24% to increase other corporate bonds, and 13% to government bonds; and
• 4% expect to reduce their exposure to corporate bonds.
“Once just a strategic idea without much traction, liability-matching investments continue to grow as a proportion of plan assets,” Ari Jacobs, retirement strategy leader at Aon Hewitt, said in a statement about the survey.
“Regardless of the future direction of equity and bond markets, this shift should bring less volatility and greater predictability to pension plan costs.”