Cambridge Associates Urges Pensions to Critically Evaluate Ways to Optimize Their Plans’ Growth Engines

New report encourages plan sponsors to actively manage pension growth assets at all stages and funding levels in light of changing market conditions

BOSTON, April 4, 2019 – Corporate defined benefit (DB) plans would be well served by a renewed focus on growth portfolios, according to the latest report released today by global investment firm and pension plan expert, Cambridge Associates.

In recent years, many DB plan sponsors have focused predominantly on de-risking their pension plans, taking different steps depending on their plans’ funded status, future accruals, and long-term goals. The report, “Reviving Pension Plans’ Funding Engines,” contends, however, that instead all corporate DB plans should be actively addressing growth in the context of their plan’s unique circumstances, and that current market conditions make this need even more pressing.

“Plans of all stripes need to focus on their growth portfolio. In today’s market – with high valuations, continued volatility in the equity markets, and the economic and credit cycles nearing a tipping point – it is essential to maximize return potential, while still controlling risk, across both growth and liability portfolios,” says Alex Pekker, Senior Investment Director in Cambridge Associates’ Pension Practice and co-author of the report. “Even well-funded plans should not neglect this exercise because returns play a large role in offsetting administrative expenses and funding liability gaps, both of which are critical to plan health over time.”

As defined by Cambridge Associates, the pension growth engine encompasses a variety of investment strategies including global equities, private investments, and hedge funds. Importantly, the report also explores fixed income, not only as a liability hedge, but as an asset class that can drive excess returns through allocations to actively managed credit, including alternative credit.

As an extension of Cambridge Associates’ flagship corporate pension report, “A Balancing Act: Strategies for Financial Executives in Managing Pension Risk,” this new report offers plan sponsors and corporate financial executives detailed insights on the dynamics surrounding growth assets, and outlines a framework for the construction of their plan’s growth engine. A key observation of the report is the potentially significant return potential available through an allocation to private investments – if the program is designed effectively.

“The number of opportunities for private investing has grown tremendously over the last few years, providing an excellent way for plan sponsors to secure portfolio growth despite market headwinds,” says Barjdeep Kaur, Investment Director at Cambridge Associates. “That said, when there are thousands of managers to select from, having a solid understanding of how to construct a program is critical to long-term success.”

Comprehensive reviews of growth engines should occur on a regular basis to maintain a long-term view and actively manage the plan against ever-changing market conditions, plan circumstances, and sponsor-specific dynamics.

“While our pension clients are reflective of a broad spectrum of plan circumstances, return generation is an essential part of the equation in almost all cases,” Sona Menon, Head of Cambridge Associates’ North American Pension Practice added. “How to do this is, of course, always specific to each plan’s situation, but effective use of the return lever is key and mustn’t be overlooked – especially in today’s market environment.”

To learn more about the dedicated Pension Practice at Cambridge Associates, click here.

About Cambridge Associates
Cambridge Associates is a global investment firm founded in 1973.  The firm helps more than 1,000 endowments, foundations, pension plans, and private clients maximize their impact on the world by building custom investment portfolios aimed at generating outperformance across all asset classes. Cambridge Associates delivers a range of services, including outsourced CIO; investment consulting; and access to investment research and tools across the continuum of global asset classes.

Cambridge Associates has more than 1,200 employees and maintains offices in Boston; Arlington, VA; Beijing; Dallas; London; Menlo Park, CA; New York; San Francisco; Singapore; Sydney; and Toronto. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information, please visit www.cambridgeassociates.com.