Part of the derisking decision relates to private markets allocations, which many pension funds will now find accounting for a bigger portion of their overall portfolios than before.
For some, the only option is to sell out of positions and take unenviable haircuts on their assets — for example, if they are in urgent need of more liquidity or need to quickly sell out of assets that insurers will not take as part of a risk transfer deal.
Sources said some pension funds — albeit a very small number — are taking haircuts of up to 20% by selling their private assets on the secondary market, just to reduce those weightings.
For others, though, new tactics are being employed as part of overhauled asset allocations.
One option is to continue to invest in private assets but reduce the commitment size, which will help to manage exposures.
"We're not … stopping investing in private markets, not just because of the temporary effect but also because this is a time of market dislocation, and (it usually means) great opportunities for investment," Ms. Menon said.
NEPC's Mr. Chastain is also seeing some clients reducing commitment sizes but not stopping investments altogether. They "definitely don't want to eliminate those relationships (with fund managers) for a shorter-term market event in terms of an asset allocation perspective," he said.
Some clients are also looking to broaden the allowable range for investment in private markets. While any such decision needs to go through the proper governance process, there is a "recognition in the broader investment community that … (it may be better) to broaden your flexibility," Ms. Menon said.
Finally, there's a "very small subset" of plans that have terminated their private markets allocations because the funded status has improved and "they want out," she added.
Whatever path is taken, conversations are now taking place between pension fund executives, sponsoring employers and their consultants.
"We're seeing more evidence of trustees and companies working together to make sure they use their pension assets and pension plan to their full potential — whether that be some sort of shared surplus, funding DC or benefit augmentations — we're seeing more discussions there," Aon's Mr. Mackenzie said.
The future relationship between a pension fund and its sponsoring employer is "a big strategic decision — there are going to be instances where what was a 10-year recovery plan is now looking like it can be done in two years. Is there a meeting in the middle between trustees and corporates where trustees take less risk, corporates pay contributions for less time, and there's a middle ground? That will be where we see a lot of action," Mr. Mackenzie added.