Poll: Global Pension Plans Seek Active Equity Management

Top concerns among pension plan sponsors are funding status, risk management, and volatility.

(January 19, 2010) — Leading global pension plans say one of the ways they will obtain their goals will be through active equity management, according to a poll of defined benefit pension plans.


Institutional investors worldwide rank the present funding status of their pension plans, risk management, and continued volatility as their greatest challenges.


The poll showed that after suffering losses in 2008, plans are seeking ways to return to equity markets. A large majority of institutional investors believe actively managed equity strategies, versus passive management, will deliver excess market returns in the future, according to Young D. Chin, chief investment officer of Pyramis Global Advisors.


Many plans proved to have strong interests in emerging market equities. According to a news release, the strongest interest in upping emerging market equity allocations was found in the Netherlands (50%) and the Nordic region (46%). Canada and the U.S. followed with 30% and 25% of plans, respectively, expecting to increase allocations in emerging market equity.


In addition, the poll found that following recent market declines, pensions are managing volatility by diversifying into alternative investments. For example, in Europe, 32% of plans are definitely or likely to diversify into alternatives, such as hedge funds, infrastructure, or private equity. Canada and U.S. public defined-benefit plans follow with 50% and 34%, respectively.


As for inflation, concerns were highest among U.S. pension plan sponsors, followed by Nordic, Canadian, and then U.K. plans. On the other hand, those that viewed deflation as a bigger risk than inflation in upcoming years were plans in the Netherlands, followed by Swiss plans.


“Globally, plans are focusing on improving their current funding status while managing their risk exposure and choosing appropriate investment strategies to deal with continued volatility,” said Chin.


The 2009 fourth quarter Pyramis’ Global Pension Pulse Poll surveyed decision makers at 427 corporate and public pension plans in 12 countries that in total manage more than $1 trillion USD in assets. The surveys were executed in association with Asset International, Inc., in the U.S., Rogers Communications in Canada, and the Financial Times in the U.K. and Northern Europe.

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