Survey Shows Finance Executives’ Top Reasons for Pension Risk Transfer

72% of respondents likely to transfer additional liabilities in the future.

A new survey with 80 senior finance executives at companies with traditional pensions reveals that those who shifted pension risk to insurers had three top concerns regarding costs and volatility.

Behind group annuity purchases, the survey shows that persistent asset related volatility, sharply rising premiums to the Pension Benefit Guaranty Corp (PBGC), and growing life expectancies of beneficiaries were the main issues regarding the transfer of pension liabilities to insurers. The survey was conducted by CFO Research in cooperation with Prudential Financial Inc.

Broad satisfaction with the outcomes were reported by executives that already transferred pensions risk, with 72% revealing they are likely to transfer additional liabilities in the future.

Of the respondents, 83% were “completely satisfied with all aspects” of their group annuity purchase. A reported 81% agreed that their beneficiaries enjoy receiving their pensions from an insurer, while 86% felt this sort of agreement helps their company keep their promises to employees and retirees alike.

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In the case of those who have yet to transfer pension liabilities, 21% said that they plan to purchase a group annuity within the next two years.

Recent increases in the PBGC premiums were the reason 36% of senior executives say their companies are more likely to purchase a group annuity in the coming years. Changes in mortality assumption and the prospect of future changes called for 33% to consider pension risk transfers.

In addition, the study shows tax and regulatory proposals from the current administration and Congress could provide further motivation in considering a group annuity purchase. Of the respondents who have not completed this transition, 55% suggested a lower corporate tax rate in 2017 would “very likely” motivate their companies to increase pension plan funding in the next year, where 40% decided lower taxes would result in either a full or partial pension liability transfer.

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Hedge Funds Among Marketable Alternatives Gaining Popularity in Endowment, Foundation Portfolios

NEPC survey finds responders more optimistic about US economy despite political uncertainty.

A survey from NEPC revealed 68% of respondents have more than 10% of their portfolios allocated to marketable alternatives, which includes hedge funds. This marks a notable increase from last year, when NEPC’s July 2016 survey found only 45% of respondents had at least 10% allocated to hedge funds.

According to the Q2 2017 NEPC Endowment and Foundation poll, 65% of respondents plan to maintain portfolio exposure rather than increase (16%) or decrease (16%) it.

The poll’s results also indicated that utilizing both liquid and illiquid marketable alternatives are becoming more favorable, with 48% of respondents reporting the use of both, 26% reporting only liquid, and 13% using only illiquid. When asked about specifics, 50% said direct hedge funds, 40% funds of hedge funds, 32% global asset allocation, and 18% liquid alternatives.

“Despite some criticism about high fees, most endowments and foundations consider marketable alternatives a vital component of their portfolios,” said Kristin Reynolds, partner in NEPC’s Endowment and Foundation Practice, in a statement. “Furthermore, it doesn’t appear that the role of alternatives in endowment and foundation portfolios will be lessened any time in the foreseeable future. Investors value the benefits that alternative strategies provide, especially because of lingering concerns about the impact that global economic and geopolitical uncertainties could have on portfolios.”

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Also covered was endowment and foundation views on the pros and cons of investing in marketable alternatives. Portfolio diversification as viewed as the number one benefit by  80%, as well as risk management, reported by 61%. Low or disappointing returns (76%), high fees (73%), and transparency (65%) were among the top concerns.

In response to the greatest threats to their investment performance in the near future, 39% of respondents pointed to a slowdown in global growth, up 5% from the Q1 survey and down 24% from Q3 2016’s survey. Geopolitics and political uncertainty was deemed the greatest threat to the portfolios of 37% of respondents—the same as the Q1 poll, but 9% down from Q4 2016’s poll.

Optimism for the US economy improved dramatically, as 65% of respondents felt that the US economy is in better standing now than it was at this time last year. In the Q2 2016 survey, just 29% thought it was in better shape than it was in 2015. Only 8% of Q2 2017 respondents think the US economy is in a worse place, compared to the 50% of respondents feeling this way in the previous year’s survey.

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