The recovery of asset valuations in 2013 made for an exceptional year for institutional portfolios according to a survey from Greenwich Associates. But despite the success, investors continue to fine-tune their portfolios.
The value of US institutional investment portfolios increased 11 percent in 2013, according to Greenwich’s “2013 US Institutional Investor Study.”
“Despite that appreciation, institutional investors continue to implement major changes to their portfolio management strategies and asset allocation profiles in an effort to achieve their increasingly diverging objectives,” said Greenwich Associates consultant Andrew McCollum.
The improvement has also boosted company (and public) pension funds, according to Greenwich. This has come about even as MNCs reduce risk. “Corporate funds, which are subject to mark-to-market accounting rules that expose sponsor companies’ earnings to pension valuation volatility, are looking for opportunities to reduce risk,” Greenwich said.
That hews close to sentiment from an August 2013 NeuGroup pension webinar. Members of that discussion said they have not been tempted to increase risk. In fact all members polled said that their appetite for risk either remained unchanged or had been reduced in recent years.
Many are going to fixed income to help reduce that risk, according to Greenwich. “As companies’ funding ratios inch up, they tend to increase allocations to fixed income as part of risk-reducing asset-liability matching and liability-driven investment strategies,” Mr. McCollum said. Companies have also reduced pension fund risk by closing defined benefit plans to new employees and pension buy-outs. This is a strategy that has been followed “by one-in-10 large U.S. corporate plan sponsors over the past three years,” Greenwich said.
But Greenwich sees investment attitudes changing over the next few years, as new realizations that the low-interest-rate environment will continue. “Over the next three years, corporate investors are expected to increase target allocations to alternative asset classes such as private equity, real estate, hedge funds and commodities, while reducing allocations to US and regionally-focused equities,” Greenwich wrote.
The so the sirens of risk may prevail after all.