Prudential Completes First US Pension Buy-In Transaction

A North Carolina-based manufacturing company has used pension plan assets to purchase a “portfolio protected buy-in" policy, transferring investment and longevity risk to a Prudential Financial Inc. unit.

(May 26, 2011) — Prudential Retirement has completed its first US buy-in with a $75 million pension risk transfer.

North Carolina-based Hickory Springs Manufacturing Company selected Prudential’s Portfolio Protected Buy-in to complete the pension risk transfer transaction.

“With the help of our advisor BCG Terminal Funding Company, we selected Prudential Retirement because of its flexibility in structuring a solution that we feel will help us fulfill our fiduciary obligations and enhance our employees’ retirement security,” said Steve Ellis, Chief Financial Officer of Hickory Springs, in a statement. “We were impressed with the Prudential Retirement team’s expertise and continued focus on our business needs.”

Phil Waldeck, senior vice president and head of Prudential Retirement’s Pension & Structured Solutions business, added: “Prudential is pleased to be the first company to bring a pension buy-in to employers in the U.S. We are also honored to be Hickory Springs’ provider of choice.”

For more stories like this, sign up for the CIO Alert daily newsletter.

The number of such pension risk transfer deals in the UK market has been growing in recent years as pensions seek to transfer their risk to banks and insurers. Pension consultancy Hymans Robertson recently showed that with $7.2 billion (£4.5 billion) of risk transfer deals completed last year, the second quarter of 2011 looks to be a record quarter for the number of buyin and buyout deals completed in the UK. James Mullins at Hymans stated in a release that by the end of 2012, one in four FTSE 100 companies would have completed either a buyout or a buyin.

“Our analysis illustrates that it won’t be long before £50 billion of pension scheme risk has been transferred to insurance companies and banks,” Mullins said. “2010 was the third successive year during which £8 billion of pension scheme risks were transferred via buy-ins, buy-outs and longevity swap deals. 2011 is likely to see a substantial increase above these levels.”



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

Foundations Report a Drop in Investment Returns in 2010

Two studies from the Commonfund Institute have revealed that foundations and operating charities have reported an average investment return of 12% in fiscal year 2010 — marking the second consecutive year of double-digit growth, yet a hefty drop from the average investment return from 2009.

(May 26, 2011) — Foundations and charities achieved investment returns of 12.5% last year, compared to returns of 21% in 2009, according to two studies -— one of foundations and the other of charitable organizations — released by the Commonfund Institute.

While last year’s returns weren’t as stellar as those achieved the previous year, they were significantly above the performance in 2008, when returns totaled negative 26%.

According to a report on the survey — the 2011 Commonfund Benchmarks Study of Foundations — the best performing asset class was energy and natural resources, commodities and managed futures, which returned 22.1% for the year. Behind that were domestic equities, at 17.7%; distressed debt, 15%; international equities, 14.5%; private equity 11.3%; alternative strategies, 10.6%; venture capital, 9.4%; short-term securities and cash, 9.2%; marketable alternative strategies, 9.1%; fixed-income, 8.1%; and private equity real estate, -2.5%.

At the end of 2010, the average asset allocation for foundations was 38% alternatives, 26% domestic equities, 16% international equities, 13% fixed income and 7% short-term securities, cash and other investments.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

The Commonfund Benchmarks Study of Foundations consisted of results from 175 independent and private foundations and the Commonfund Benchmark Study of Operating Charities consisted of 69 charities.

A previous study of endowments, released in January showed that endowments in the US returned an average of 11.9% for the 2010 fiscal year, a sharp improvement compared to the negative 18.7% average return reported in the previous year’s study.

“The study reflects the heightened importance that institutions are paying to liquidity, cash reserves, and investment policies,” William E. Jarvis, managing director of the Commonfund Institute, told aiCIO following the release of the report. “The changes you’re seeing with endowments reflect the fact that the endowment model is alive and well, despite commentators over the last few years who have questioned the model,” he said, noting that while endowments are still below their pre-crisis peaks in terms of size, highly diversified portfolios have enabled endowments around the country to weather the financial storm.



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

«