Defined benefit plan sponsors are pulling money out of domestic stocks and shifting it into international stocks and elsewhere.
These pension executives are rebalancing their portfolios because their domestic equity exposure topped its target allocation due to the bull market run. In some cases, they're also nervous about a possible correction.
Among the funds rebalancing or considering doing so are: the New Jersey Division of Investment, Trenton; Delta Air Lines Inc., Atlanta; the School Employees Retirement System of Ohio, Columbus; Rohm & Haas Corp., Philadelphia; the Anne Arundel County Retirement System, Annapolis, Md.; Clarkson University endowment, Potsdam, N.Y.; the Art Institute of Chicago; and the Duluth (Minn.) Teachers' Retirement Fund Association.
The $55 billion New Jersey fund has been taking profits from the U.S. stock market all year, because its domestic stock exposure had ballooned to about 62% of total assets, six percentage points above its 56% target, said Roland M. Machold, director.
"This last year we have put nothing into the (U.S.) stock market," he said.
Instead, the fund has been using cash flow to hike its international stock exposure. New Jersey has sold about $100 million of U.S. stocks this year.
Its international stock target allocation is 14%; the fund has about 10% invested in that asset class so far, Mr. Machold said.
Delta Air Lines also is moving to international from domestic. Jim Taylor, chief investment officer, said the $7.5 billion fund just moved "several hundred million" dollars out of domestic stocks and into foreign equities.
Delta, which rebalances every quarter, maintains a target of 46% for domestic stocks, 20% for fixed income, 10% for private equity and in the mid-20% range for international stocks.
Mr. Taylor said Delta pension executives have "been nervous for a very long time" about the U.S. market's meteoric rise.
Meanwhile, the $5.5 billion Ohio School Employees' fund is contemplating adopting a formal policy of rebalancing when an asset class exceeds its long-term target, said Paul M. Kubinsky, director of investments.
Ohio School has 47% of its assets in domestic stocks - two percentage points above the target - and is at its 10% target for international stocks. The fund is considering bumping up its international equities allocation to 15% after a state law capping such investments at 10% is lifted next March, Mr. Kubinsky said. But it might use spare cash to build up foreign stock exposure, instead of pulling money out of domestic stocks, he said.
Rohm & Haas plans on rebalancing its $1.2 billion pension fund later this month or in January, although not by a huge amount because the fund is not pushing against its equities target yet, said Angus Smith, assistant treasurer, pension investments. The fund had 54% of its assets in equities at the end of September.
The $550 million Anne Arundel fund is conducting a similar review of its portfolio because "it is starting to bump up" against its 70% target for stocks, said Al Warfield, assistant financial officer.
"We haven't invested any new money in the market, it's simply because the stock market has done so well," he said.
Fund officials keep an eye on the asset every quarter, but generally rebalance once a year. They are looking at hiking fixed-income and real estate exposure, by using spare cash and by trimming equity investments in an insurance company separate account. The fund has 27% in fixed income and 3% in a real estate commingled pool.
Officials at Clarkson University plan to rebalance the $82 million endowment to reduce equities by 10 percentage points, said James D. Fish, comptroller. Equities now make up 85% of the allocation, thanks to the domestic stock market. Proceeds will be allocated to bonds.
Mr. Fish said the change would be done through a reallocation among the fund's managers; all will be retained.
The Art Institute of Chicago, which has $320 million in its endowment, doesn't usually rebalance. But at a Dec. 9 board meeting, trustees are expected to discuss looking at hedge funds, real estate investment trusts and tactical asset allocation funds because of concern "the market has delivered an awful lot in the last couple of years" and it is time to hedge its risks, said Robert Mars, executive director.
The fund has 65% in stocks (including international), 30% in bonds and 5% in cash.
And the $180 million Duluth Teachers' fund recently approved a policy to rebalance its portfolio every quarter, up from once a year, said J. Michael Stoffel, executive secretary.
The fund's goal is to keep 55% of assets in stocks - of which 15 percentage points is international - and 40% in bonds, plus 2% in real estate and 3% in cash. But the U.S. stock market's amazing rise pumped up equity exposure to 61% Following the rebalancing, the fund will have about 57% of its assets in stocks.
Duluth changed its rebalancing policy on the advice of its consultant, Jeffrey Slocum & Associates, Minneapolis.
To be sure, some plan sponsors don't need to worry too much about market movements because they rebalance their portfolio every month. The $1.6 billion-plus Georgia-Pacific Corp. fund is one of those, said John E. Stettler, senior director of benefit investments in Atlanta
"We stay very close to our targets," Mr. Stettler said.
The fund aims to keep 75% of its total assets in stocks, including 16% in international. Mr. Stettler noted executives are looking at bolstering the fund's international equity exposure in small increments over the next several years.
Consultants strongly recommend regular rebalancing.
"Every opportunity they have with cash flows, (sponsors) should be looking at their account balances against targets and feed those that are lagging and take from those that are over the targets," said Jeffrey Slocum, president of his own firm.
Roger C. Bransford, managing director of Watson Wyatt Investment Consulting's American practice in Atlanta, concurs, but encourages clients to rebalance "not set by the clock, but by movements in the market."
Watson Wyatt also has been nudging clients to invest at least 20% of their total assets in international markets.
