US pension plan managers confident in their hedging, Ortec Finance finds
10 May 2023 US
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86 per cent of US public sector pension plan managers are confident that their plans are well hedged against inflation, but there are still concerns about possible risk scenarios, according to recent research from risk and return management solutions provider Ortec Finance.
26 per cent of those polled described their pension plans as ‘very well hedged’, while just 12 per cent labelled their plans as ‘average’.
The study, consisting of 50 US public sector pension fund managers responsible for a combined $1.315 trillion in assets under management, was conducted in February 2023.
Despite managers’ confidence in their plans, 66 per cent state that they are increasing allocations to commodities to strengthen their hedging against inflation and half will increase infrastructure investing allocation.
Ortec’s research found continued concern from managers around the risk of ‘stagflation’, a combination of low growth and high inflation, and the impact it could have on investment strategies. Only 2 per cent were not concerned by this, with 50 per cent ‘quite concerned’ and a further 48 per cent ‘very concerned’.
Changes in actuarial assumptions on the expected inflation or discount rate were predicted by all those polled.
Marnix Engels, managing director of pension strategy at Ortec Finance, says: “Pension plans need to manage their balance sheet effectively in order to achieve long-term objectives while dealing with short-term risks. That includes identifying major risk sources such as stagflation as well as looking at future contributions and funding levels.
“More work is being done in terms of asset allocations with commodities emerging as the clear favourite for increased exposure in the year ahead and there are some lingering worries that the US economy will not achieve the soft landing of lower inflation and rising growth.”
26 per cent of those polled described their pension plans as ‘very well hedged’, while just 12 per cent labelled their plans as ‘average’.
The study, consisting of 50 US public sector pension fund managers responsible for a combined $1.315 trillion in assets under management, was conducted in February 2023.
Despite managers’ confidence in their plans, 66 per cent state that they are increasing allocations to commodities to strengthen their hedging against inflation and half will increase infrastructure investing allocation.
Ortec’s research found continued concern from managers around the risk of ‘stagflation’, a combination of low growth and high inflation, and the impact it could have on investment strategies. Only 2 per cent were not concerned by this, with 50 per cent ‘quite concerned’ and a further 48 per cent ‘very concerned’.
Changes in actuarial assumptions on the expected inflation or discount rate were predicted by all those polled.
Marnix Engels, managing director of pension strategy at Ortec Finance, says: “Pension plans need to manage their balance sheet effectively in order to achieve long-term objectives while dealing with short-term risks. That includes identifying major risk sources such as stagflation as well as looking at future contributions and funding levels.
“More work is being done in terms of asset allocations with commodities emerging as the clear favourite for increased exposure in the year ahead and there are some lingering worries that the US economy will not achieve the soft landing of lower inflation and rising growth.”
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