Corporate Pensions are Looking to Make Changes to Liability-Driven Investment Allocations
29 Novembro 2023 - 10:30AM
Business Wire
Franklin Templeton commissions first landscape
study since 2019 showing many plans are now fully funded, fueling a
fresh evaluation of many pensions’ LDI programs
A new study commissioned by Franklin Templeton and conducted by
Coalition Greenwich reveals corporate pension plans are signaling
changes to their liability-driven investment (LDI) approaches in
the current interest rate environment. The first dedicated
Corporate Defined Benefit (DB) LDI research in over five years
marks a distinct inflection point in pension plan management
strategy and LDI approaches of the top US Corporate DB plans.
After the global financial crisis in 2008, funded status of
corporate pension plans plunged from around 100 percent to only 80
percent—erasing years of hard-fought gains. It has taken more than
a decade for most plans to slowly climb back to healthier funded
status levels—the average pension was just 88 percent funded at the
end of 2020. But the rise in interest rates has resulted in many
corporate DB plans reaching fully-funded status, now 104 percent on
average, in less than two years—creating a critical opportunity to
further de-risk their portfolios.1
According to the Coalition Greenwich study findings, 73 percent
of pension plans report funding ratios of 100 percent or higher
while 23 percent report funding ratios in excess of 110 percent.
The challenge pension funds now face is preserving these healthy
funding levels with 70 percent of plans in the study indicating
that protecting funded status at current levels is a top investment
priority compared to 20 percent of plans that cite generating
returns to maximize funded status as their top investment
priority.
“We have seen a dramatic shift in the funding ratio over a short
period of time and now is the time for corporate pension plans to
review their LDI portfolios to ensure they are properly diversified
and have adequate downside protection,” said Timothy Quagliarello,
senior client advisor, Franklin Templeton Institutional.
“Maintaining funded status is critical and continuing to
methodically de-risk a portfolio is important to help protect the
great progress corporate pensions have made over the last few
years.”
Many pension plans indicated that a reevaluation of their
current LDI manager line-ups may be necessary. About half were
concerned with “substantial overlap in holdings” among their LDI
managers, and nearly a third cited inadequate downside protection
when markets sell-off, higher correlations between managers, and
off-benchmark exposures like high yield presented a key risk in
their current allocations. Approximately 30 percent of study
participants indicated they are contemplating a change to LDI
strategies—a significant share considering the very long-term
nature of DB portfolios. Of those contemplating changes, 44 percent
indicate wanting to improve downside risk protection. Furthermore,
when asked about the most important qualities when selecting an LDI
manager, risk management (96 percent), fees (70 percent) and
knowledge of key pension risk management elements (70 percent)
ranked highest.
“While rising interest rates were a windfall for corporate
funding ratios over the past few years, we think protecting the
hard-earned gains requires a change to how plan sponsors select
managers and design their liability hedging allocations,” said Tom
Meyers, senior director of investments, Franklin Templeton Fixed
Income. “We believe that many pension plans review managers on a
singular basis, and sometimes overlook that it’s the mix of
managers that is most important. Owning all the best managers may
not make for the best portfolio. Once you understand what each
manager is delivering and how they are generating returns, many
plans find that they are actually doubling down on the types of
strategies with the same types of vulnerabilities. We believe it’s
best to find the right mix of managers that complement each other’s
strengths to deliver both enhanced diversification and downside
mitigation to an existing multi-manager hedging allocation.”
Corporate DB plans are entering a new phase of pension
management. The past decade was marked by growth as the top
priority, but the rapid rise in interest rates has put many
corporate pensions in an advantageous funding position, making
safeguarding those gains the top priority of this next phase.
Consequently, multi-manager LDI hedging allocations need to evolve
to further reduce funded status volatility and help prepare pension
plans for end game scenarios like hibernation or annuitization.
More detailed information on the study can be found at the
Coalition Greenwich website or visit the Franklin Templeton website
to connect and learn more.
1 Source: Milliman, 2023 Corporate Pension Funding Study, as of
September 30, 2023. The Milliman 100 Pension Funding Index tracks
the funded status of 100 U.S. public companies sponsoring the
largest defined benefit (DB) pension plans.
Survey Methodology
From August through October 2023, Coalition Greenwich conducted
30 interviews with institutional investors targeting key
decision-makers at corporate DB plans based in the United States to
understand how they manage diversification and plan/fund risk,
select an LDI manager and navigate overall risks on the economic
horizon. As part of the study, Coalition Greenwich also held
in-depth discussion with some of the world’s biggest and most
prominent investment consultants. The bespoke study was
commissioned by Franklin Templeton. Coalition Greenwich and CRISIL
Ltd are not affiliated with Franklin Templeton.
About Franklin Templeton
Franklin Resources, Inc. [NYSE:BEN] is a global investment
management organization with subsidiaries operating as Franklin
Templeton and serving clients in over 150 countries. Franklin
Templeton’s mission is to help clients achieve better outcomes
through investment management expertise, wealth management and
technology solutions. Through its specialist investment managers,
the company offers specialization on a global scale, bringing
extensive capabilities in fixed income, equity, alternatives and
multi-asset solutions. With more than 1,300 investment
professionals, and offices in major financial markets around the
world, the California-based company has over 75 years of investment
experience and over $1.3 trillion in assets under management as of
October 31, 2023. For more information, please visit
franklintempleton.com and follow us on LinkedIn, Twitter and
Facebook.
Copyright © 2023. Franklin Templeton. All rights reserved.
TN23-72
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231129297710/en/
Franklin Templeton Corporate Communications: Rebecca Radosevich,
(212) 632-3207, rebecca.radosevich@franklintempleton.com Katherine
Fox, (646) 818-9010, kfox@prosek.com
Franklin Resources (NYSE:BEN)
Gráfico Histórico do Ativo
De Abr 2024 até Mai 2024
Franklin Resources (NYSE:BEN)
Gráfico Histórico do Ativo
De Mai 2023 até Mai 2024