Global pension funds focus on risk after crisis-survey
BOSTON (Reuters) - Major pension fund managers are worried about funding shortfalls and improving their risk management techniques after the years-long financial crisis, according to a survey to be released on Wednesday.
Top pension fund managers cited a variety of lessons they took from the volatile markets that began in 2008, driving them away from equities and into fixed-income and alternative asset classes.
Some 62 percent noted a "need for more downside protection" when markets tumble, and 54 percent citing "improved risk management," according to the study, conducted by Boston fund giant Fidelity Investments.
The lessons underscore the new investment strategies that many big funds have rushed to adopt, such as adding more asset classes or adopting "liability-driven investing" strategies, said Young Chin, chief investment officer of Fidelity's Pyramis Global Advisors institutional investment unit, which conducted the survey.
According to its data, for instance, 35 percent of corporate plans and 27 percent of public plans will likely reduce their exposure to equities. Similar percentages will likely increase their fixed-income assets.
Some 60 percent of public-sector plans expect to diversify into alternative asset classes, while just 22 percent of corporate plans expect to do so, Fidelity found.
Fidelity did not specify changes at particular pension plans. But state pension funds such as those in California and Utah have loaded up on hedge-fund holdings in recent years as a way to reduce the risk they faced from the roller-coaster performance of their traditional equity holdings.
Despite the rush in the U.S. private sector to embrace so-called "defined-contribution" retirement plans like 401(k)s, many large companies still maintain traditional pension plans for at least some of their employees, from Bank of America Corp to Dow Chemical Co.
Fidelity said for its study, it surveyed 466 corporate and public pension plans in the United States, Canada and 11 European countries who together oversaw more than $2 trillion in assets -- about 12 percent of the world's so-called "defined-benefit" market.
To keep these plans funded without draining corporate coffers, plans traditionally have looked for returns averaging 8 percent a year -- a figure that was crushed in 2008 when U.S. stocks fell 37 percent on average.
Many pension plans sent more assets to hedge funds in response, as a way to boost returns.
Although the funds charge higher fees, they posted losses of just 1 percent of the past three years on average, compared with losses averaging 5 percent for the Standard & Poor's 500 stock index, according to Keith Black, associate at pension plan consulting business Ennis Knupp in Chicago, now part of Hewitt Associates Inc.
The shift of assets and greater use of bond funds by corporate pension plans matches the trends described by Fidelity, Black said.
"The funds are looking for a way to reduce the potential losses if the equity market has another of those events," he said.
(Reporting by Ross Kerber, editing by Maureen Bavdek)
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