PENSION PLAN SPONSORS APPLY DIVERSIFICATION AND ASSET-LIABILITY MATCHING TO WEATHER VOLATILITY

Posted April 1, 2008

GREENWICH, Conn. – Many US pension plan sponsors believe they are well-positioned to weather current global markets volatility through a new model of portfolio management emphasizing broader portfolio diversification and asset-liability matching, according to the 2008 US Investment Management Research Study by Greenwich Associates.

This portfolio management model is designed to generate the investment returns needed to fund future pension liabilities while minimizing risk within portfolios, according to the study.

The model’s emphasis on broader portfolio diversification is based on a common theory that low levels of correlation among holdings can increase returns and decrease risk, which has been applied successfully by US endowments and is driving the growth of pension investments in hedge funds, private equity and other alternative asset classes.

The model’s approach to asset-liability matching more closely aligns assets to future pension liabilities, through steps such as reducing exposure to long-only equities, increasing fixed-income exposure, and lengthening the duration of portfolios.

“The results of this year’s Greenwich Associates’ research indicate that US institutions believe the new financial instruments and strategies they have adopted have them well prepared to sail through the shoals now revealing themselves in global financial markets,” says Dev Clifford, an analyst at Greenwich Associates.