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, and 4% expect to increase domestic equity exposure.
Also, 32% expect to increase allocation to long-duration bonds; 24% plan to increase other corporate bonds, and 13% expect to boost government bonds. Four percent 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.”
Aon Hewitt surveyed defined benefit plan executives of 227 large U.S. companies, representing $389 billion in total combined assets, in late 2010 and early this year.