Money managers and asset owners are wrestling with how to help employees manage their investments to provide adequate retirement income in a defined-contribution-dominated world, said speakers at Pensions & Investments' Investment Innovation & the Global Future of Retirement conference, held in New York June 22-24.
As workers live longer and defined contribution plans overtake defined benefit plan growth, industry experts are implementing new asset allocation approaches that cut across traditional and alternative investment classes in DB plans and pondering investment options such as a greater array of index funds in DC plans.
Another hot topic is risk. After suffering through the financial crisis and its aftermath, investors are trying to mitigate myriad risks — from return risk to liquidity risk — lurking in their portfolios.
“Most people think that I spend my time thinking about return risk,” said Charles Van Vleet, assistant treasurer and chief investment officer, who oversees $10 billion in defined benefit and defined contribution plan assets at Textron Inc., Providence, R.I.
Instead, Mr. Van Vleet said he is concerned about governance, regulatory and liquidity risks.
He spoke on a panel about mitigating risk, along with David Iverson, head of asset allocation at the NZ$$25.5 billion ($22.1 billion) New Zealand Superannuation Fund, Auckland, and William Kinlaw, senior managing director and head of portfolio and risk management research at State Street Associates, Boston.
Too much liquidity is just as bad as too little liquidity, Mr. Van Vleet said, noting he likes investments that are either perfectly liquid, such as stocks, or illiquid, such as private equity.
“I don't like investments that are in between,” Mr. Van Vleet. An example is open-end real estate funds that promise liquidity but in market downturns have forced investors to wait in line to get their money, he said. Some 80% of Textron's $600 million in real estate is in direct investments.
By contrast, investors have a way — albeit an expensive one — to exit private equity funds through the secondary market. Open-end real estate funds have no secondary market “when those things turn to cement,” he said.