Funded Ratio for US Corporate Plans Gain 3.8% in January

The aggregate funded ratio for US corporate pension plans rose 3.8 percentage points to 88.4% in January, and gained 6.4 percentage points over the trailing 12 months, according to Wilshire Consulting.

The change in funding during the month was a result of liabilities decreasing 2.2%, while asset values increased 2.0%.

“January’s month-end funded ratio is the highest in over four years since December 2013 when the funded ratio was 88.9%,” said Ned McGuire, managing director of Wilshire Associates. “January’s increase in funding was driven by a decline in liability values caused by the significant rise in Treasury yields, and an increase in asset values fueled by strong performance in global equities.”

Wilshire’s figures represent an estimate of the combined assets and liabilities of corporate pension plans sponsored by S&P 500 companies. The funded ratio is based on the CPLI – Intermediate liability, with service cost, benefit payments, and contributions in-line with Wilshire’s 2017 corporate funding study. Barclays Long Aa+ U.S. Corporate Index is used to estimate the most current month-end liability growth.

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Wilshire also reported that assets tracked by its Wilshire Trust Universe Comparison Service had a median return of 3.59% for all plan types in the fourth quarter of 2017. The service also reported a median one-year gain of 14.72%, which is more than twice the 7.24% reported at the end of the previous year.

“This quarter marked the ninth consecutive positive quarter, the longest string of positive quarterly returns for all plan types since June 1998,” said Robert Waid, managing director, Wilshire Associates. “This was the best one-year return since the year ending June 30, 2014, ended with 15.51%, and fourth consecutive quarter to post an annual return above 10%.”

Tags: Corporate Pension, Pension, S&P 500, Wilshire Consulting

After reporting 9.1% investment returns in 2017 totaling 28.8 billion SEK ($3.5 billion), the Second Swedish National Pension Fund’s (AP2) assets have grown to 345.9 billion SEK ($42.1 billion).

While 2017 returns are slightly less than 2016’s 10.5%, the results—albeit a mixed bag in terms of comparisons—continue to exceed the fund’s long-term targets in both the long and short terms.

“Our return has continued to develop positively after yet another year with good results at a low cost. We are following our long-term strategy and have worked intensively in the area of sustainability,” AP2 CEO Eva Halvarsson said in a statement. “The average annual real return for the last five and10 years amounts to 9.0% and 5.0%,respectively. This exceeds our long-term goal and shows that over time, we have the ability to create value for Sweden’s pensioners, even in periods characterised by a turbulent world around us with financial crises.”

Domestic equities returned 11.3%, with developed markets equities returning 10.7% for the year. These were mixed, as domestic equities produced slightly more than 2016 (9.1%), whereas developed markets equities raked in less than the year prior (16.9%).

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In emerging markets, equities performed better (20.6%) when compared to the previous year, where they garnered 18.9%, while debt (3.5%) and green bonds (-0.6%) saw better days in 2016, where they returned 17.8% and 5.6%, respectively.

Fixed income was also wishy washy, with Swedish debt, overseas government debt, and overseas debt returning 0.6%, -2.3%, and -1.7% in 2017 versus 2.2%, 8.3%, and 12.3% gains in the previous year.

The rest of the portfolio, allocated to real estate, venture capital, alternative risk premiums and credit, and Chinese government bonds and equities also returned positive for 2017 (9.5%), but also less than 2016, where it returned 13.5%

While pleased with the returns, Halvarsson plans to continue the fund’s mission of developing its portfolio to include sustainability in all of its management. In 2017, the fund created two multi-faceted indices, where the majority of the weighting was determined by ESG (environmental, social, and governance).

“We aim to develop our portfolio in line with the two-degree target and our vision has long been to integrate sustainability in all our management,” she said. “An important step in integrating sustainability as part of the investment decisions is that we have continued to implement ESG in the global equities asset class in our internal quantitative management. It is approximately 29% of the total portfolio and amounted to SEK 99 billion at year-end.”

Tags: AP2, Pension, Returns, Sweden