Two-thirds of defined benefit plan executives surveyed jointly by Pensions & Investments and Rocaton Investment Advisors said they have liability-driven investment strategies in place, a number expected to rise to more than 80% within two years.
The online survey was conducted in March. It showed that as their plans' funded status improves, a majority of LDI users will move more money to LDI strategies — and away from growth asset classes such as equities.
For a solid majority of those respondents, that glidepath appears to be a one-way street. In response to a survey question, more than 80% said they will not add risk to their portfolios again if their funded status declines.
The survey results reflect a central tension in the current LDI discussion, between plan executives increasingly sold on the need to hedge their pension liabilities, but hesitant to accept the costs of better matching those bond-like liabilities now, with bond yields near historic lows.
“There's a natural human aversion to investing in an asset class where you think there may be a significant risk of losses over the near to intermediate term,” but that hasn't quashed growing interest in “developing clearly defined plans” for implementing LDI, Robin S. Pellish, Rocaton's CEO, said in a telephone interview.
The survey drew responses from 50 corporate plans, two public plans and four union plans. Three plans reported assets of more than $25 billion; four had assets between $10 billion and $25 billion; 30, from $1 billion to less than $10 billion; and 19, below $1 billion.
Among the 56 respondents, five reported having plans that are more than 100% funded, with another 16 from 90% to 100% funded. Twenty-two fell in the 80% to less than 90% range, and 13 reported funding levels of below 80%.
Ms. Pellish said the survey captures the same broad interest in LDI that Rocaton is seeing among its own clients in recent years, ranging from companies making their first, modest allocations to long-duration bonds in an effort to hedge interest-rate risk to those using long bonds or derivatives to hedge 100% of their liabilities.