What is your ultimate defined benefit destination? Do you know the levers and opportunities on the asset and liability sides that will yield the greatest return on investment? Do you know how to best sequence and coordinate them to reach that destination?
We can help.
Investment strategies today are more complex and dynamic than ever before. With regulatory and legislative changes, market volatility, and political uncertainty, you may be looking at a wide range of opportunities across the pension balance sheet to increase returns, reduce the size of your liabilities, and manage risk. A key tool for helping defined benefit (DB) plans meet their final obligations and funding objectives is to look at growth in assets relative to liabilities. Our investment team examines the major and minor asset classes and market/return drivers to create an optimal strategic plan to meet surplus growth objectives with an appropriate risk profile.
Our experience and knowledge of the market allow us to construct a portfolio of managers and funds with strategic allocations that can potentially improve your
Assets under advisement global1 — one of the largest investment consultants2
With benefit accrual ongoing, the investment strategy at this stage is to maximize long-term growth. As your outsourced chief investment officer (OCIO) service provider, we will provide guidance on the right risk posture and balance between risk and return and then implement the plan. The strategic asset allocation strategy will provide asset-liability modeling and look at not just risk and return but also the impact on expected cash, balance sheet, and the income statement. Your DB plan’s portfolio will consist, in broad terms, of a growth portfolio designed to close the deficit and a liability-hedging portfolio comprising fixed-income instruments designed to hedge long-term liabilities.
With benefit accrual soft or hard frozen, the focus at this stage is on improving funded status and reducing volatility. As your OCIO, we’ll monitor a daily feed of both assets and liabilities, making the information accessible to committees and with quarterly performance reports. Given the growing prevalence of hedging strategies and funded-status triggers, these capabilities are not “nice-to-haves” but rather requirements.
The key goal here is to exit from the pension business, with a focus on liability-reduction exercises. Mercer has extensive OCIO experience in this area and can assist with management of liquidity to meet large divestments; implementation of a strategy to hedge a potential risk transfer or to reduce frictional trading costs in paying an annuity premium, or management of the post-deal investment strategy.
As more plan sponsors look to self-insure their obligations, we believe that hibernation investing will begin to dominate the pension investment landscape. This involves putting plans in a steady state while winding them down over time or gradually preparing for pension risk transfer over a longer period of time. Hibernation investing brings its own set of challenges and risk-management opportunities. But we think success comes when seeing this as a tailored investment strategy within a broader self-insurance framework. The goal is a low-risk, balanced outcome for asset and liability management, and to stay aligned in a way that minimizes costs, volatility, and capital commitments. If your DB plan is entering a hibernation period, here are four key priorities:
Global delegated Assets Under Management3
Please See Important Notices For Further Information.
1 The information is as of December 31, 2017. Please see "Important notices" for further information on assets under management and assets under advisement.
2 Pensions & Investments. Pensions & Investments Survey, November 27, 2017.
3 Information as of March 31, 2018.
We'd be happy to set up a free consultation or send you more information to get you started.<br>