Alexander Pekker, PhD, CFA, ASA

With many frozen DB plans experiencing sustained surpluses for the first time since the Global Financial Crisis, it may be timely to re-assess the end-game objectives and the associated investment strategy for frozen plans. In this paper, we describe how despite being "trapped," the surplus may serve strategic corporate objectives; examine alternatives to termination and hibernation; and discuss considerations for staying the course, de-risking, or re-risking once the terminal glide path point… Show more

With many frozen DB plans experiencing sustained surpluses for the first time since the Global Financial Crisis, it may be timely to re-assess the end-game objectives and the associated investment strategy for frozen plans. In this paper, we describe how despite being "trapped," the surplus may serve strategic corporate objectives; examine alternatives to termination and hibernation; and discuss considerations for staying the course, de-risking, or re-risking once the terminal glide path point is reached. Show less

We share our view on the role of securitized assets in liability-hedging portfolios. On their own, securitized assets are typically a less compelling liability hedge, within a broader portfolio context, modest tactical allocations to select securitized segments and issuers may provide valuable diversification, liquidity, and/or relative value benefits, especially in Intermediate Credit portfolios.

We review the critical role of Intermediate Credit within liability hedging assets, analyze differences between Intermediate and Long Credit investment universes, and address a wide spectrum of intermediate-duration, out-of-benchmark securities that offer opportunities to diversify corporate exposures and add less correlated alpha.

As plan sponsors sharpen the precision of their liability hedging portfolios, hedging credit spread risk remains a challenge and an opportunity. Our most recent paper addresses practical considerations for hedging this component of the liability discount rate, at both the total portfolio level and within the credit sleeve.

Credit alpha can play an important role in offsetting pension plan expenses, building a cushion against adverse plan experience, and helping plans to reach a funded status level suitable for hibernation and/or termination. This paper addresses how carefully selected below investment-grade (BIG) bonds integrated within an actively managed credit strategy can help generate credit alpha and hedge liability credit spread risk.

Even in an era of historically low interest rates, robust liability hedging remains a bedrock of prudent pension risk management. Given a heightened risk of yield curve steepening, plan sponsors should (re-)evaluate their asset/liability interest rate risk, both in total and across different maturity points, to quantify the impact of non-parallel yield curve movements and reposition their liability-hedging portfolios as needed.

With the COVID-19 pandemic wreaking havoc in capital markets, pension plan sponsors are faced with critical investment and management challenges, involving multiple stakeholders and extending beyond the pension itself. We address four key issues plan sponsors face: liquidity, rebalancing, implementation, and communication. Our intention is to help plan sponsors prudently and effectively manage their pension plans in the context of their overall enterprise risk management in this time of crisis… Show more

With the COVID-19 pandemic wreaking havoc in capital markets, pension plan sponsors are faced with critical investment and management challenges, involving multiple stakeholders and extending beyond the pension itself. We address four key issues plan sponsors face: liquidity, rebalancing, implementation, and communication. Our intention is to help plan sponsors prudently and effectively manage their pension plans in the context of their overall enterprise risk management in this time of crisis and beyond. Show less

As the COVID-19 outbreak has escalated in the United States, sponsors of single employer–defined benefit pension plans have experienced a roller coaster ride … but not only on the asset side! Accounting liabilities experienced enormous variation, as well, thanks to sharp movements in the corporate bond yields used to value them... Avoiding, or at least cushioning, another roller coaster ride requires a well-designed hedging strategy that accounts for credit spreads. This paper provides both… Show more

As the COVID-19 outbreak has escalated in the United States, sponsors of single employer–defined benefit pension plans have experienced a roller coaster ride … but not only on the asset side! Accounting liabilities experienced enormous variation, as well, thanks to sharp movements in the corporate bond yields used to value them... Avoiding, or at least cushioning, another roller coaster ride requires a well-designed hedging strategy that accounts for credit spreads. This paper provides both contextual background on this rapidly evolving spread environment and potential responses. Show less

Healthcare systems can benefit greatly by maximizing equity orientation and illiquidity while prudently managing risk. But a typical healthcare system may have investment assets in multiple accounts, due to mergers & acquisitions (M&A), capital projects, and fundraising, as well as operational and pension benefit growth. Investments can be curated—identified, categorized, and clustered—for optimal efficiency and cost savings. Similarly, defined benefit pension plans can be restructured to… Show more

Healthcare systems can benefit greatly by maximizing equity orientation and illiquidity while prudently managing risk. But a typical healthcare system may have investment assets in multiple accounts, due to mergers & acquisitions (M&A), capital projects, and fundraising, as well as operational and pension benefit growth. Investments can be curated—identified, categorized, and clustered—for optimal efficiency and cost savings. Similarly, defined benefit pension plans can be restructured to better manage pension risk and administration. This paper discusses strategies to simplify and streamline investment structures to make complexity more manageable for investment and financial executives. Show less

Given increased volatility in global equity markets, relatively high valuations in many market segments, and the late stages of the economic and credit cycles, optimizing the plan’s growth engine is more critical, and challenging, than ever. This publication provides a framework for how to do so in the context of the evolving market environment.

Since fixed income derivatives are more capital efficient and flexible than physical bonds, they can play a key role in liability hedging for many corporate and other single-employer pension plans.

For many pension plans, investment strategy is often structured with a liability-hedging portfolio and a growth portfolio, with the weight and composition of each determined by a strategic asset allocation or a de-risking glidepath. Within this overall structure, the construction and calibration of the liability-hedging portfolio is integral to effective pension asset management. This report focuses exclusively on the liability-hedging portfolio, delineating key considerations and best… Show more

For many pension plans, investment strategy is often structured with a liability-hedging portfolio and a growth portfolio, with the weight and composition of each determined by a strategic asset allocation or a de-risking glidepath. Within this overall structure, the construction and calibration of the liability-hedging portfolio is integral to effective pension asset management. This report focuses exclusively on the liability-hedging portfolio, delineating key considerations and best practices for single-employer defined benefit plans including those sponsored by corporations, health care institutions, non-profit organizations, and certain partnerships. Show less

Private investments can a key driver of improved return for many pension plans and could be particularly important in the years ahead given projected low returns for most traditional asset classes over the next decade.

Yes. Issuance of ultra-long Treasury bonds (greater than 30 years to maturity, including potentially 40-, 50-, and 100-year maturities) would benefit multiple constituents.

Adaptive and sophisticated strategies are necessary to serve the unique features, constraints, and needs of multiemployer plans.

While corporate plan sponsors are keenly aware of interest rate risk within their defined benefit plans, few fully appreciate the complex and significant risk posed by credit spreads.