Defined benefit plans shifted more of their overall portfolios into fixed income during the year ended Sept. 30, according to Pensions & Investments' latest survey of the 1,000 largest U.S. retirement plan sponsors.
This likely served investors well as bond indexes were simultaneously up about 10% during that time.
The DB plans of the 200 largest U.S. plan sponsors, in particular, sought to derisk and increased allocations to liability-driven investment strategies, and also targeted higher income, reporting more assets in private credit and emerging market debt, the survey found.
Among the DB plans of the largest 200 plan sponsors, assets in LDI investments grew 16.7% to $109.8 billion during the year ended Sept. 30. LDI assets among this group continued to grow after charting 19.3% growth over the year ended Sept. 30, 2018, with $94.1 billion in assets. These plans also significantly increased their exposure to emerging market debt as assets in these strategies grew 67.9% to $39.8 billion, while assets in private credit grew 61.5% to $26 billion over the year.
As of Sept. 30, DB plans of the largest 200 plan sponsors had, on average, 24.5% of their total portfolio in domestic fixed income, compared to 23.9% the year prior. These DB plans had 2.8% of their total portfolio in global/international fixed income as of the end of September, up from 2% a year earlier, P&I's annual survey found.
Large corporate DB plans, in particular, have looked for ways to diversify their fixed-income portfolios, which might include looking at private debt or emerging market debt strategies, said Jon Pliner, a New York-based senior director, investments, and head of delegated portfolio management in the U.S. at Willis Towers Watson PLC.
Corporate DB plans of the largest 200 plan sponsors saw their allocations to domestic fixed income grow to 47.4% of their portfolio as of Sept. 30, up from 43.4% the year prior, P&I's survey found. Global/international fixed income made up 1.7% of these corporate DB plan's portfolio, up from 1.5% as of Sept. 30, 2018. In comparison, domestic fixed-income allocations accounted for 38.8% of these corporate DB plans' overall portfolio as of Sept. 30, 2017.