Study: Multiemployer Plans Considering Changes in Wake of Poor Funding Status

Trustees say volatility and funding status concerns influence considerations for new allocation strategies, a new SEI survey reveals.

(June 23, 2010) — According to a recent survey by SEI Global Institutional Solutions, 49% of US multiemployer defined benefit pension plans face funding ratios of 80% or less in 2010, with 67% of respondents focusing on liabilities over returns when setting their investment strategies.

“Clearly, multiemployer pension funds and their trustees were negatively impacted by the 2008 market declines and what we’ve found is that these funds are focusing much more on new strategies like liability-driven investment to better manage these plans moving forward,” said Jon Waite, director of investment management advice and chief actuary of SEI’s Institutional Group, to ai5000.

The study showed 26% of respondents’ plans were below 65% funded, putting them in the 2006 Pension Protection Act’s “red zone” category, and 23% were 65% to 80% funded, placing them in the PPA’s “yellow zone” category. The remaining survey respondents’ pension plans were above 80% funded.

The study also highlighted a greater openness to alternatives among multiemployer trustees, who have traditionally been relatively conservative when it comes to pursuing the asset class. Eighty-seven percent are invested in alternatives; of those, 61% had allocations to alternatives of 15% or less. Real estate was the most popular alternative investment, with 84% of respondents invested in the asset class, followed by hedge funds at 48% and private equity at 42%.

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“A lot of these funds have been increasing their allocation to alternatives over the past year, with a much greater focus on how they’re managing their portfolios via outsourcing, for example, for improved cost-savings and expertise,” said Waite. “Given that we’ve seen nearly 40% of plans increase their alt allocations over the past year, we’re expecting to see this trend continue as multiemployer funds seek to control volatility and improve their funded status,” he noted.

The survey was conducted in May through research by questioning a select group representing 31 unique multiemployer pension funds. Of those individuals questioned, 39% were union trustees, 19% were management trustees, and 42% filled other pension administrative roles.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

DIC Pension to Renew RE Investing; World's Biggest Pension to Split Assets

In Japan, the DIC pension plan is looking to diversify into real estate, while the GPIF is indicating a move to make the fund more transparent to the public.

(June 23, 2010) — The Dainippon Ink and Chemicals Incorporated (DIC) pension fund plans to invest in real estate at home and abroad for the first time since 2006, when the subprime mortgage crisis was emerging, Bloomberg reported.

“One of the best investment decisions we made was to exit all our real estate investments in 2006 on the view that property prices worldwide were expensive,” Hideo Kondo, the asset management director of the fund, said in an interview in Tokyo with the news service. “But now, we’re starting to see some investment opportunities in the real estate market.”

The plan by the fund, which manages 87 billion yen ($959 million) of assets, comes after Japan’s commercial land prices dropped to the lowest in at least 36 years. Japanese pensions are now adjusting their investment following two decades of waning markets. Dutch money manager Robeco Group, for example, aims to double assets from Japanese pension funds within two years, shifting investments away from traditional asset classes such as bonds and equities.

Currently, DIC invests 55% of its assets in domestic bonds and the remaining capital in domestic and overseas equities, Kondo confirmed with Bloomberg. Alternative investments, which includes real estate, currently accounts for about 16% of the portfolio.

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DIC’s fund targets a yearly return of 3.5%.

Separately, the Government Pension Investment Fund (GPIF) of Japan, the world’s biggest public pension fund whose 122.5 trillion yen ($1.35 trillion) in assets under management is greater than India’s GDP, may need to split its asset management into two portions to raise transparency. The panel decided that one portion would be for safe assets and the other for seeking higher returns, a government panel said in an interim report on Wednesday.

In spite of the pension’s relatively conservative investment approach, the GPIF suffered a 9.7 trillion yen loss in the fiscal year ended March 2009.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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