Many of the largest U.S. pension plans have new faces at the chief investment officer's desk since the global financial crisis.
Data from Pensions & Investments show that of the 20 largest U.S. DB plans, 13 CIOs did not hold this position at their plan in 2008.
So, given that many large plans' CIOs weren't in their positions during the crisis and in fact have only been in their leadership roles during a bull market, are they prepared for a downturn, or even another 2008-level financial crisis? Sources with whom P&I spoke said yes, provided they have enough liquidity and systems in place to not only weather the storm but be proactive in seeking out opportunistic investments.
"Many plans are in a better position today understanding their portfolios and taking measures," said Michael Comstock, a partner at Aon PLC's investing consulting business in Chicago.
Investment consultants have been working with their pension plan clients to stress-test their portfolios in a number of macroeconomic scenarios to show how they would perform in a downturn.
"We've been very proactive to ensure clients aren't complacent," Mr. Comstock added. "Times have been good for investors for the last couple of years."
And several plans are being proactive to ensure they're ready for the crisis next time.
James H. Grossman Jr., CIO of the $58 billion Pennsylvania Public School Employees' Retirement Sys- tem, said the Harrisburg-based plan "changed quite radically after the great financial crisis."
A 70% allocation to equities and negative cash flows led to an approximately 40% drawdown in the portfolio and forced selling when the crisis hit.
Knowing the plan could not afford a repeat of that experience, PennPSERS has since moved to a more balanced portfolio construction to reduce volatility.
Now, "our concern is that the next downturn will be both deeper and longer than previous downturns, which will put stress on our employers for additional contributions at a time when tax revenues are challenged," he said.
He added that with interest rates as low as they are, the diversification benefits from the fixed income within the portfolio "won't be a great as in previous drawdowns."