How Much Can Corporate Sponsors Shape Pension Asset Allocation?

Firms highly invested in innovation allocated more to private equity while companies with large land holdings invested heavily in real estate, according to a study.

Company characteristics could influence where capital is allocated in their corporate defined benefit (DB) plans, research has found.

According to a study, pension plans sponsored by firms with high innovation expenditures invested more in private equity in their DB plans. And those with large land and building holdings allocated heavily to real estate.

“Such alternative investment tilts result in private equity and real estate being overweighted relative to the average and median pension asset mix,” said Christina Atanasova, of Simon Fraser University in Canada, and Gilles Chemla, at the Imperial College Business School in London. “The links between the sponsors’ characteristics and the pension plan’s alternative assets remain robust.”

Specifically, the study found that one standard deviation increase in the ratio of research and development (R&D) expenses to capital led to an increase of more than 0.45% in a plan’s private equity investments. Sponsors in the top quartile of R&D expenditures invested twice as much in the asset class than those in the bottom quartile, the authors said.

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For firms with large land and building holdings, one standard deviation increase in holdings led to a jump of more than 0.75% in allocation to real estate investments. The study also found firms in the top quartile of land and building holdings invested 15% more in real estate than those in the bottom quartile.

Moreover, the authors argued that there existed a “familiarity bias” in alternative investment tilts as statistics showed that firms became increasingly allocated to private equity investments in their pension plans after diving into R&D. The same was true for firms with land and building holdings and real estate.

However, Atanasova and Chemla said pension plans with such alternative tilts underperformed the median DB plan when measured for excess returns. According to research, funds sponsored by firms in the top quartile of R&D lagged far behind in abnormal return on private equity than those in the bottom quartile.

Read the full paper here.

David Winters’ hedge fund has launched an attack on the soda company, and apparently has the interest of at least one major institutional shareholder.

Hedge fund Wintergreen Advisors has built up its holdings of Coca-Cola stock, and taken aim at the corporation’s governance and operations.

In a newly launched website—fixbigsoda.com—Wintergreen outlined a multi-point plan for improving shareholder returns. The proposal included “a laser-like focus on costs,” “no more attempts to buy growth,” separating the roles of chairman and CEO, improved disclosure, “a strong and independent board or directors,” and replacing the 2014 executive equity compensation plan.

The beverage giant announced its second quarter earnings July 22. Global sales volume grew 2% year-on-year for the first half of 2014, yet net revenue dropped 3% for the same period.

Wintergreen’s CEO David Winters jumped on these figures as further evidence for reforming aspects of the company.

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“Coca-Cola’s lackluster second quarter earnings report underscores the need for urgent action,” Winters said. “If the current board of directors and management team are unwilling or unable to get Coca-Cola back on the path of profitable and organic growth that accrues to all shareholders, they should be replaced. Coca-Cola and its shareholders deserve nothing less.”

New Jersey-based Wintergreen contacted Coca-Cola’s largest institutional shareholders earlier this month to voice its concerns, according to the hedge fund. Of these ten mega-investors, Winters told ValueWalk that one has expressed interest in the plan, in addition to many smaller shareholders.

Coca-Cola’s largest institutional shareholders include Berkshire Hathaway, Vanguard, State Street, FMR, BlackRock, Northern Trust, Bank of New York Mellon, Yacktman Asset Management, and Capital Research Group.

Warren Buffett, whose firm Berkshire Hathaway owns roughly 400 million Coca-Cola shares, told has told CNBC that he privately disagreed with the company’s executive compensation plan.

“I don't really want to embarrass the Coca-Cola company,” Buffett said on May 5. “I was certainly looking to have them reexamine what they were doing.”

However much he agreed with Winters about excessive pay packets, in a CNBC interview Buffett dismissed the activist investor’s notion that Coca-Cola might be taken private.

“Absolutely no chance of that,” Buffett said.