US Investment Management - Calm Before the Liability Storm?
New research from Greenwich Associates suggests that the US asset management industry is on the brink of revolutionary change as pension plan sponsors look beyond their historic focus on asset growth and investment returns to more holistic strategies for funding pension liabilities. This shift, which could portend radical disruptions for the investment management industry, is being driven by the confluence of two powerful trends: under-funding and accounting reform. Under-funding poses a well-documented danger to defined benefit pension plans – a threat that will only grow as the US workforce ages. Simultaneously, the transition to mark-to-market accounting rules in the US is reducing the ability and willingness of corporate plan sponsors to tolerate market volatility within their pension funds, and thereby their ability to generate much-needed investment returns. According to the results of Greenwich Associates’ 2006 US Investment Management Research Study, the departure from traditional pension management practices is most evident in the increasing popularity of innovative products and techniques such as liability-driven investment strategies, absolute return strategies, portable alpha and net-long approaches such as 120/20 and 130/30 strategies.