As 2010 Ends, Good News on Pension Funding Ratios

Despite a lackluster year for pension funding ratios, Q4 and December figures show a rise in pension portfolio values and a decrease in liabilities.

(January 5, 2011) – Despite a mediocre year, funding ratios of America’s pension plans were up over the last quarter and month of 2010, surveys show.

According to Legal & General Investment Management America’s (LGIMA) Pension Fiscal Monitor, the fourth quarter (Q4) of 2010 saw pension funding ratios increase by 11%, a jump from the 2% increase seen in the third quarter. However, taking a look at the year as a whole, the Fiscal Monitor showed afunding ratio decline of 1%. According to the firm, the strong Q4 was the result of a bullish equity market (contributing to a 7% average rise in portfolio value) and a rise in bond yields, which decreased liabilities (via a rise in pension discount rates from 5.3% to 5.6%, which decreased the average pension liability by 4%).

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According to the release, the Q4 ratio increase was the largest quarter-over-quarter improvement in 15 years. The result: “We estimate, on average, the U.S. corporate plan funding status is approaching 90%,” LGIMA’s Head of US Pension Solutions, Aaron Meder, said in a release.

These results were echoed in standalone December survey as well. According to BNY Mellon Asset Management, the average funding status of American corporate plans rose 3.8% to 84.3% in the final month of 2010, the best number since March of last year. However, while the figures varied slightly from Legal & General’s measurements, BNY Mellon also reported a lackluster year-over-year change in funding ratio of just 0.8%.

Looking forward, BNY Mellon’s Peter Austin noted in a release that “…we expect US plan sponsors to continue efforts to closely manage plan funding volatility. In particular, we believe adoption rates for risk reduction programs based on target funding levels will increase, especially in the presence of higher interest rates and strong equity returns.”



To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

Despite Insider Trading and FBI Raids, Hedge Funds Likely to See Inflows

At least one consulting firm is asserting that hedge funds – especially smaller ones – will see capital coming in the doors in 2011.

(January 4, 2011) – Despite recent concerns over insider trading and accompanying criminal probes at various hedge funds and the informational networks they often employ, at least once consulting firm is predicting that 2011 will see inflows into these investment vehicles.

 

Agecroft Partners, a consulting and third-party marketing firm, is predicting that inflows into hedge funds will cross various strategies/categories, and will increase in amount from all types of institutional investors. These flows will be focused on small and medium-sized hedge funds, according to the firm, due in part to a decrease in competition from larger funds that have closed their doors to new investors.

 

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“In 2009 and 2010, there was a significant increase in competition within the hedge fund industry due to many previously closed hedge funds opening their funds to new assets,” the firm said in a press release. “After two years of the majority of assets flowing to the largest hedge funds, combined with strong performance, many of these big funds have either closed or are near capacity. The end result is less competition for assets from the largest well-known hedge funds as investors shift their focus away from investing in brand names toward managers capable of generating future alpha.”

 

Also included in Agrecroft’s predictions: 2011 will bring a large number of hedge fund launches, as was seen in the growth years before 2008’s crisis.

 

“With improved asset flows across most major hedge fund investor segments, many of these managers will have the confidence to finally launch their new funds,” the firm said. “This will make 2011 the best year for hedge fund launches since 2007. This activity will be further fueled by leading financial institutions shedding their proprietary trading desks, resulting in multiple, billion-dollar hedge fund launches.”

 

Agecroft’s predictions are based on interviews with 300 hedge funds and 1,500 institutional investors, according to the release.



To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

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