Pension Managers Becoming More Risk-Averse
September 20, 2008
Most senior finance executives in Canada and the United States plan on reducing risk in their defined benefit (DB) plans rather than seek greater return on assets, according to a new study by CFO Research Services (cfo-research.com).
The study found that more than 75% of senior finance executives emphasized risk management in response to the market volatility and tighter regulatory issues. More companies are using sophisticated tools to protect their investments and ensure that pension funds deliver the benefits promised to plan participants.
“After the highs and lows of the past several years, we’re in an economic environment where being ready for storm conditions is the new normal,” said Monica McIntosh, national leader of Towers Perrin’s Asset Consulting in Canada.
Other findings in the study: About 28% of companies have replaced DB plans with defined contribution plans, shifting investment decisions to employees. Nearly 67% of executives expected to make incremental changes to DB plans, but not terminate them within the next 24 months.
Roughly 48% of respondents said recent trends in the capital markets and a macroeconomic outlook have led their companies to consider changes in asset allocation. Many sought to reduce risk by altering their equity portfolios, investing in alternative assets and optimizing their fixed income portfolios.
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