Goldman: DB Rebalancing Waits for Q4

According to a Goldman Sachs research report, many DB plan money managers are waiting for the October to December quarter to kick off before starting to implement any rebalance strategy. This comes even though Goldman said rebalance pressure had reached “critical levels” as of August with an approximately $32-billion imbalance of equity positions that could be swapped out for additional bond investments.

“As October approaches, we do expect to see more movement out of stocks into bonds, but there are some offsetting facts that lead us to be more cautious about the expected intensity of net selling from pension funds,” Goldman said.

The company cited two factors coming into play:

• First, the rise in yields and debates on pension policy in Washington have relieved some pressure on the concerns about funded status.  Some in the pension space have a “strong conviction” that rates may be going higher. This, coupled with the improving business conditions at their companies, has made them reluctant to rush to rebalance out of stocks. “Thus, those that have the flexibility to invest with active views may let their equity overweight sit,” Goldman commented.
• Second, contributions have been coming into many plans and investment of these contributions may create additional offsets to any equity selling. 

Goldman estimated that about $10 billion of equities for sale from pension funds in the next two weeks can be balanced by retail flows or investing contributions. These flows will most likely be spread over this period with the highest likelihood from September 30 to October 10.