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Throughout most of the past half century, the private-sector defined
benefit pension market has been characterized by the measured, orderly, and –
with all but a handful of exceptions – virtually homogeneous investment
strategies of plan sponsors. Indeed, despite stark differences along such key
dimensions as workforce demographics, pension funding ratios and credit ratings,
the corporations controlling some $2.3 trillion in Defined Benefit (DB) assets
have nonetheless pursued astonishingly similar asset allocations, with longonly
equities laying claim to almost two-thirds of the typical portfolio.
For the
financial firms serving this market – primarily asset managers – the result has
been a long, enviable track record of rock-solid earnings performance. But for
many players, that smooth ride is about to turn into a roller coaster: a huge
redistribution of profits within the private-sector DB industry is now in the
making, thanks to a rare intersection of accounting, regulatory and market
forces that is spurring plan sponsors to overhaul their pension strategies. The
addiction to equity is fast giving way to a new emphasis on risk management –
rendering up for grabs, in the process, the majority of industry assets. And
taking direct aim at those assets in this new risk-focused world are insurance
companies, investment banks, and alternatives players.
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| | Banking & Securities Practice | |
| |  | The Coming Shakeout in the Defined Benefit Market |
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