Heightened challenges: How US asset owners might prepare

US pension funds and particularly public plans were struggling with their funding before COVID-19. Markets remain volatile, but the current environment provides pension plans willing to step out of their comfort zone an opportunity to re-risk in a considered approach.

Jul 9, 2020

20 minutes

Our investment objective is to be able to pay pensions, and we do it by taking as little risk as possible.

This is a quote from one of our clients and it is a wonderfully clear objective. The reality of achieving this goal, however, is complicated, particularly in a climate of unprecedented global macro-economic challenges and uncertainty.

US pension plans, especially public funds, have faced steep funding challenges for many years, and the ongoing COVID-19 pandemic exacerbates them. The uncertainty about how the pandemic will unfold and its impact on the global economy has resulted in historically volatile financial markets and worsening US pension funds’ already precarious financial health. While the most recent rebound in some asset prices allows for partial relief, US asset owners will need to make difficult decisions as they consider the composition of their respective portfolios for the next decade. Several of our institutional clients have highlighted three challenges they must address:

  • Liquidity: paying benefits is not optional
  • Diversification: does it pay and where can we find it?
  • Accessing new growth vectors: where and how?

In short, what many US retirement plans are looking for is a smoother path toward solvency. This is where the symbiotic relationship between asset owners and asset managers is key in developing a common understanding of the exposures and portfolio management techniques that find the appropriate balance across liability matching, growth, diversification and liquidity. Not surprisingly it will require making some hard choices and challenging long-held beliefs through a forward-looking lens.

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Authored by

Philip Anker

CEO, Americas

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