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Archive for March 26th, 2009

Pension’s Target Equity Allocations Shifted Down

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While stated equity targets have not declined significantly, actual equity allocations at year end were much lower. For the 83 companies that provided data, the average target equity allocation is 55 percent for 2009, compared with 58 percent for 2008. However, actual equity allocations fell over the year, to 48 percent at the end of 2008 from 59 percent the year before.

Watson Wyatt Worldwide

So although the 2008 market meltdown brought actual equity allocation in pension funds down below 50%, employers have not materially altered the target equity allocations under their pension plans’ investment policies?

If that were true, it would not be a trivial observation. Not very trivial at all. For decades, the typical pension fund held its equity allocation target steady near something like 65%, through bear and bull. Which then automatically drove an ongoing buy-low-sell-high strategy: if a bull market drove the equity allocation toward 70%, then the fund would sell stocks (at relatively high prices) to bring the equity allocation back down toward the target; conversely, if a bear market drove the equity allocation down toward 60%, then the fund would buy stocks (at relatively low prices) to bring the equity allocation back up toward the target. So if pension funds were truly holding their targets in place in the face of the meltdown, then we could expect to see some rather heavy duty cash moving into the market. Which was largely behind my bloody spring followthrough hopes, thinking that maybe just maybe I might consider heading back into the market myself as early as Memorial Day, to join the parade of all that new money coming in, instead of waiting until late 2009 or early 2010.

Except, Wyatt is wrong. And not just on the numbers, but on exactly what those numbers mean regarding the commitment of pension funds to their stocks.

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Written by macheide

26 March 2009 at 4:55 pm

Posted in άctuary