|
||||||
|
|
|
|
|
|
|
|
|
 |
 |
 |
 |
Want to support Global Action on Aging? Click below: Thanks! |
|
US
pensions insurer mulls switch to bond investments By Norma Cohen in London, Financial Times
June 10, 2003 The US government
agency that insures occupational pensions is considering switching some or
all of its equity investments into bonds, reflecting the growing awareness
of the risk with shares. The Pension Benefit
Guaranty Corporation said it was undertaking the first review of its
investment strategy in a decade, which it aimed to complete by the end of
September. A move by the agency -
which has a $26bn investment portfolio - to a fixed-income strategy would
send a signal to US pension funds about its concerns that equities cannot be
counted on to deliver the returns needed to pay benefits. The funds have an
average holding of 60 per cent of their assets in shares. "If you invest in
equities, there is a trade-off," said Steven Kandarian, the PBGC's
executive director. "There is more volatility. If a company cannot deal
with that volatility, then they should invest more in bonds." For the financial year
ended September 30 2002, the PBGC lost $11.3bn - more than five times its
loss in any previous year - and ended the year with a deficit of $3.6bn.
That had widened to $5.4bn by March 30, the PBGC's half-year, largely
because of further falls in US interest rates. While the US
government does not guarantee the agency's solvency, its board consists of
the US secretaries of commerce, the treasury and labour, and it is often
assumed that taxpayers would, if necessary, bail it out. Mr Kandarian said
pension funds' equity investments had served them well during the boom years
of the 1990s, delivering double-digit returns so employers did not have to
contribute to schemes. However, many companies were now having to make large
contributions when corporate profits were under pressure. About two-thirds of
the agency's investments are in fixed-interest securities, mostly US
Treasuries and agency paper. However, $8bn-$9bn is invested in US equities,
and it is this portfolio that could be switched to bonds. It is unlikely that
any switch would happen swiftly, because of the impact on the market. Since
1994, the agency's policy has been to invest its premium income - premiums
paid by insured schemes - in bonds and to "immunise" the portfolio
against interest-rate moves. That way, the scheme can be sure that its
assets can meet liabilities. However,
it has followed a policy of maintaining the investment portfolios of
insolvent employers, many of which are already in shares. Copyright ©
2002 Global Action on Aging
|
