Administration August 10, 2011

Alternative Products Still a Focus for Asset Managers

August 10, 2011 (PLANSPONSOR.com) - Cerulli's annual report on the retail alternatives space finds more than 70% of asset managers cite the desire to help investors boost risk-adjusted returns as the primary driver in offering these products.
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In addition to wanting to deliver better performance, firms also see alternatives as a means of differentiating themselves in a competitive marketplace. A press release said Cerulli sees asset managers’ emphasis on competitive differentiation as a shift in thinking. Firms may be less concerned about the impact of the market crisis and volatility, and are more concerned about their firm’s long-term business strategy.  

“The number of alternative mutual funds has tripled since 2003, with 65 new funds launched in 2010,” commented Pamela DeBolt, senior analyst and contributor to Cerulli’s annual retail alternatives research, in the announcement.  

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Alec Papazian, retail asset management analyst and co-contributor to the research, added: “Our research reveals that nearly 40% of asset managers view distribution one of the most significant challenges in offering alternatives. In order to access shelf space, product providers need to understand what gatekeepers are looking for in alternative investments. Aspects such as investment process, the firm’s and portfolio manager’s reputation and track record, use of derivatives, underlying benchmarks, and proper disclosures can be key criteria for some gatekeepers. It’s incumbent upon asset managers to learn which alternatives criteria are most important to their distribution partners.”
Administration August 10, 2011

Milliman 100 Sees Largest Funded Status Decline of 2011

August 10, 2011 (PLANSPONSOR.com) - The funded status of the 100 largest corporate defined benefit pension plans dropped by $68 billion during July as measured by the Milliman 100 Pension Funding Index (PFI).
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Milliman said the notable increase in the funded status deficit was primarily due to a substantial decrease in corporate bond interest rates that are the benchmarks used to value pension liabilities. Though not as significant, the financial markets also performed poorly in July. For the month, the funded ratio fell from 87.0% to 83.0% and the funded status deficit increased from $186 billion to $254 billion.   

July 2011 marked the 10th largest deficit increase recorded within the last 11 years of the Milliman 100 PFI.  

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The projected benefit obligation (PBO), or pension liabilities, increased by $62 billion during July, raising the Milliman 100 PFI value from $1.426 trillion to $1.488 trillion. The change resulted from a decrease of 31 basis points in the monthly discount rate, which sat at 5.12% at the end of July.  

July’s $6 billion decrease in market value (-0.32%) brings the Milliman 100 PFI asset value from $1.240 trillion at the end of June to $1.234 trillion. By comparison, the Milliman 2011 Pension Funding Study, published in March 2011, reported a 0.64% (8.00% annualized) median expected monthly investment return during 2010.  

Over the last 12 months (August 2010-July 2011), the cumulative asset return has been 10.7% and the Milliman 100 PFI funded status has increased by $87 billion. For the past 12 months, the funded ratio of the Milliman 100 companies increased from 76.2% to 83.0%.  

Milliman projects that under an optimistic forecast with rising interest rates (reaching 5.97% by the end of 2012 and 6.57% by the end of 2013) and asset gains (12.0% annual returns), the funded ratio would climb to 104% by the end of 2012 and 122% by the end of 2013. Under a pessimistic forecast (4.27% discount rate at the end of 2012 and 3.67% by the end of 2013 and 4.0% annual returns), the funded ratio would decline to 75% by the end of 2012 and 69% by the end of 2013.

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