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Pensions to De-Risk Portfolios, Invest In Alts in 2019: Survey

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Defined benefit plan sponsors are using this tumultuous time of geopolitical tensions, Federal Reserve action, the possibility of a recession and other factors to prepare for the future, according to a new survey.

NEPC, an independent, full-service investment consulting firm, released the results of its latest survey of defined benefit plan sponsors. This survey focused on plan sponsors’ outlook on the U.S. and global economies and how they anticipate changing their asset allocation and investment strategies in 2019.

The survey results suggest that plan sponsors are preparing for the future by either adopting a wait-and-see approach or actively taking steps to de-risk their portfolios.

What’s more, many respondents plan to increase allocations to alternative assets in 2019, suggesting they expect them to outperform traditional assets and are therefore reducing uncompensated risks.

“Our survey results indicate that plan sponsors are almost evenly split on whether their course of action in 2019 should be to begin preparations for an economic downturn or recession, or to stick with their current strategy and continue capturing returns for as long as possible,” Michael Valchine, senior consultant in NEPC’s corporate practice, said in a statement.

The survey also finds that plan sponsors are taking safer approaches to their asset allocation strategies in 2019. When the survey asked DB plans about their preferred asset allocation strategies, two-thirds of respondents indicated they’re taking safer approaches, a third (33.5%) plan to focus on risk mitigation strategies, and another third (33.5%) said they won’t make any meaningful changes.

According to the survey, 30% of respondents plan to decrease allocations to U.S. large-cap equities in 2019, “perhaps due to ongoing volatility that shows no signs of abetting.”

The DB plans surveyed also indicated their intentions to diversify their portfolios by increasing allocations to private equity (29% of respondents) and hedge funds (24%).

Similarly, a third of respondents said they plan to increase allocations to safe-haven investments such as Treasuries, perhaps because 85% expect the 10-year Treasury yield to increase from its current level of 3% by the end of 2019.

None of the survey respondents anticipate increasing allocations to high-yield investments, a riskier option, according to the survey.

In terms of investment strategies, many of the DB plans surveyed indicated they will take safer, more conservative approaches to managing governance priorities in 2019.

According to the survey, 70% of respondents said they’ll stay the course, while 21% will revise plan documents and their investment policy statements. Very few plan to revise glidepath monitoring and implementation or consider an outsourced CIO model.

This survey was conducted online by NEPC’s corporate practice in October. The survey had 33 respondents from both corporations and health care organizations.

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