Seeking to reduce risk and volatility in the company's defined contribution plans, officials at JM Family Enterprises Inc. have been adding alternative investments ranging from commodities and hedge funds of funds to global tactical asset allocation and direct real estate.
Plus, the company's $296 million defined benefit plan has 33% of its assets in alternative investments, including hedge funds of funds, commodities, core real estate, opportunistic real estate and GTAA. Most of the alternatives have been added to the DC and DB plans since 2010.
The DB plan's allocation to alternatives closely matches the $528 million profit-sharing plan's target of 34% in alternative investments.
The $216 million 401(k) plan gives participants a choice among three asset-allocation options with alternatives' target exposures ranging from 25% to 30%.
Most defined contribution plans don't use alternatives, and such investments are not common for defined benefit plans the size of JM's. Also, the percentage allocations in both the DC and DB plans are unusually high.
“After the economic crisis of 2008, we realized that we basically had a 60-40 portfolio (60% equities, 40% bonds), but 90% of the risk was related to equities, primarily U.S. equities,” in the DB and DC plans, explained Ronald Virtue, director of investments for JM. The Deerfield Beach, Fla., company's businesses include vehicle distribution, financial services, insurance and auto dealerships.
“Our goal was to diversify, reduce risk and perform in many types of economic environments,” Mr. Virtue said. He noted JM wanted to provide similar alternatives' exposure among the plans because “we have a total return mandate for all three plans.”
Mr. Virtue's efforts earned him an Award of Excellence at the third annual Innovator Award ceremony during Pensions & Investments' West Coast Defined Contribution Conference, held last month in San Diego. The awards are co-sponsored by P&I and the Defined Contribution Institutional Investment Association.
His strategy for reducing volatility, increasing diversification and maintaining returns “is an admirable goal and unusual for a plan and a company of their size,” wrote one of the Innovator Award judges.