Pensions Should Shift From De-Risking to Growth: Report

It’s time for corporate defined benefit plans to renew their focus on growth, according to a report released this week by Cambridge Associates.

In recent years, the report says, many DB plan sponsors have focused mainly on de-risking their pension plans, taking different steps depending on their plans’ funded status, future accruals and long-term goals.

Instead, it argues, all corporate DB plans should actively turn their attention to growth in the context of their plan’s unique circumstances.

Current market conditions make doing so even more pressing, given increased volatility in global equity markets, relatively high valuations in various market segments and the late stages of the economic and credit cycles.

“Plans of all stripes need to focus on their growth portfolio,” the report’s co-author Alex Pekker, senior investment director in Cambridge Associates’ pension practice, said in a statement. “It is essential to maximize return potential, while still controlling risk, across both growth and liability portfolios.

“Even well-funded plans should not neglect this exercise because returns play a large role in offsetting administrative expenses and funding liability gaps, both of which are critical to plan health over time.”

According to the report, pension growth involves a variety of investment strategies, including global equities, private investments and hedge funds. It also includes fixed income, both as a liability hedge and as an asset class that can drive excess returns through allocations to actively managed credit, including alternative credit.