A survey by NEPC asking 44 corporate and health-care pension funds what they thought were the top three risks to the stock market over the next 12 months said that 93% chose the Federal Reserve's ability to fight inflation as one of the risks, 79% picked rising interest rates and 57% chose declining corporate profit margins.
However, only 43% of all respondents to the survey that was conducted by the investment consulting firm in September and released on Tuesday said that geopolitical turmoil in Europe was one of their top three concerns while just 16% said the same for China.
"We believe the first three responses are connected as plan sponsors remain concerned about the overall health of the economy," said Brad Smith, partner and member of NEPC's corporate defined benefit team. "We believe many respondents are concerned that the Fed may overtighten, sending the economy into a hard recession."
Mr. Smith said that falling profit margins would add additional downward pressure on equity valuations and would likely lead to additional pressure on stock prices.
"Therefore, it is not surprising that plan sponsors identified profit margins, the Fed and higher rates as the biggest concerns," he said.
Of those surveyed, 65% were corporate organizations, 26% non-profit health-care organizations, 2% were for profit health-care organizations while 7% were some other type of defined benefit plans. Roughly 30% of respondents had assets under management of over $1 billion while the other 70% were below that figure as of Dec. 31, 2021.
The survey found that the majority of plans have an established glidepath, with 49% of respondents having a one-way glidepath for just derisking. Just 16% report using a two-way glidepath that includes derisking and adding risk, with 35% of respondents not utilizing any type of glidepath.
A clear majority of respondents, 61%, also said that they have no plans to implement pension risk transfer in 2022 or 2023, with just 21% saying they were considering it, and the remaining 17% agreeing to it in the form of full-plan termination or partial risk transfer.
An accompanying news release said that smaller pension funds, defined as less than $1 billion in assets under management, are more likely to consider pension risk transfers. Of those with AUM over $1 billion, 76% are not considering any type of PRT; 80% of those considering PRT do not cite the current market environment for their decision.