An SEI Quick Poll shows a significant increase in the percentage of pension portfolios investing in alternatives when compared to the previous three years of polling.
This year, nearly eight out of ten (78 per cent) pension executives surveyed in the SEI Quick Poll reported their organisation had some allocation to alternatives in the pension portfolio, compared to 51 per cent in 2008, 53 per cent in 2009, and 65 per cent in 2010. However, while more plans in 2011 appear to be using alternative investments, allocations greater than 10 per cent of the overall portfolio appear to have decreased in the past year.
In 2010, 77 per cent of respondents with more than USD300 million in pension assets allocated at least 10 per cent of the portfolio to alternatives, compared to only 42 per cent of pensions of the same size this year.
Of the executives surveyed, nearly half (46 per cent) said the plan’s funded status was 90 per cent or better. When asked about the future direction of pension plans, more than half (52 per cent) of the pension executives polled said even if the pension were fully funded they would not look to terminate the plan. The results also indicate a correlation between well-funded plans and the long-term strategy of the plan. Of those executives with fully funded plans, more than three-quarters (76 per cent) reported they would not terminate the plan if they could, compared to the 65 per cent of plans less than 80 per cent funded who said they would terminate immediately if they could.
The poll found wide discrepancies in regard to use of Liability Driven Investing (LDI) strategies. Notably, more than half (57 per cent) of the respondents with pensions greater than 90 per cent funded have no allocation whatsoever to LDI strategies. Of those from the group using LDI, 70 per cent have at least 40 per cent of the overall pension portfolio in LDI.
"Alternative investments continue to be integrated into pension portfolios as another channel for mitigating risk, while providing additional return apparently. However, ongoing volatility of interest rates continues to put liability risk as a primary concern for plan sponsors," says Jon Waite, Director, Investment Management Advice and Chief Actuary for SEI’s Institutional Group. "The poll results show numerous inconsistencies in the use of various investment strategies, including alternatives, over the past year as plan sponsors appear to be uncertain of what’s most appropriate. This might also explain an increased interest in outsourcing as now, more than ever, plan sponsors need to maximise the benefits of external resources and the expertise they provide.
In regard to the trend toward an outsourced approach, nearly half of all participants (47 per cent) said their organisation would evaluate an outsourced approach to investment management when they next make a change. Of those organisations open to evaluating outsourcing, 43 per cent said they plan to issue an RFP for these services by the end of 2013. Larger plans expressed a significant interest — of the plans with more than USD300 million in assets, 41 per cent said they would evaluate an outsourced model.
The fourth annual Quick Poll was completed by 106 pension executives overseeing assets ranging in size from USD25 million to over USD1 billion. Of the respondents, 49 per cent oversee more than USD300 million in assets. None of the respondents were institutional clients of SEI.