Products September 14, 2012

Tool Helps Monitor Collateral Exposure

Northern Trust added client collateral to the categories managed by its Exposure Analysis tool, to help institutional clients collect complex information at the fund or plan level.
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Exposure Analysis offers institutional investors and asset managers an understanding of the effect that a single entity has on a fund or plan as soon as market events occur.

Available on Northern Trust’s Web portal, Passport, the tool provides information on collateral positions in an entity as well as market exposure to physical assets and counterparty exposure to over-the-counter derivative transactions.

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“As the market has evolved and clients seek more transparency [in] their portfolios, our tools have been enhanced to allow our clients to monitor their exposure to determine how their fund or plan may be impacted,” said Debra Clayton, product manager for corporate and institutional Services.

Clients worldwide can enter a security identifier or issuer name via the tool and immediately receive total client collateral positions in any one entity across asset types and accounts. Exposure Analysis shows clients their collateral positions through amount, location and status of collateral. The addition of collateral exposure to market, counterparty and securities lending positions expands clients’ view of portfolio exposure to help them ensure that they have effective risk management and compliance oversight programs in place.

 

Data & Research September 14, 2012

SEI Poll Finds Majority of Pensions Frozen

SEI’s Institutional Group released the results of its corporate pension investment mid-year quick poll.
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Because of continued market volatility and record-low interest rates this year, the average funded status of U.S. corporate pensions dropped 2.9 percentage points in July, to 68.7%—the lowest since 2007. The goal of the survey was to determine the investment challenges and strategies that had the greatest impact on pension management in the U.S. and Canada this year.

Some key findings include:

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The future remains uncertain. More than half (55%) of pension plans surveyed are either closed or frozen, meaning new employees cannot participate, but only 1% of plans have begun the termination process. An additional 37% said their pension is 81% to 90% funded; only 11% admitted having a plan that is below 70% funded. In the U.S., 27% of plans surveyed currently fail to meet the federal funding minimum of 80%, the poll found.

When asked whether or not they would terminate their plans if they were fully funded, 44% of respondents said they would terminate the plan but continue to offer an alternative retirement benefit such as a 401(k), and 56% said they would not terminate because the pension is too critical a part of the benefits structure.

U.S. MAP-21 to leave contributions largely unaffected. Less than half (43%) of U.S. respondents believe MAP-21 – the recent law that changes how liabilities are calculated, potentially lowering contributions in the immediate future – will be effective, while almost one-quarter (21%) said it was too early to gauge the impact. 

Popularity of alternatives declines in 2012. In previous polls, alternatives in portfolios steadily increased (78% in 2011). However, this year’s poll saw a slight decline in use (down to 65%), the same percentage as 2010. This decrease had the greatest impact on plans with more than $1 billion in assets, which dropped usage by 25%.

 

(Cont...)

Liability-driven investing and glidepath strategies remain popular.  More than half (52%) of respondents currently invest a portion of their pension portfolios in liability-driven investing (LDI) strategies. The largest group (17%) allocates between 21% and 30%. Furthermore, the survey found that plans that are 71% to 80% funded have the highest use of LDI strategies (63%); those below 70% funded use LDI strategies the least (29%); and about half (56%) of plans that are 91% to 100% funded are invested in LDIs.

Regarding glidepath strategies, 40% of survey participants are either using or currently developing one.

The biggest investment challenge of 2012. The low interest rate environment of the U.S. and Canada was the top challenge listed by poll participants. A few named difficulty predicting returns and liability valuation, discouragement in implementing LDI strategies and the negative impact on funding status. The second most common lament was market volatility, making predicting returns and developing funding strategies more difficult. The third most commonly listed challenge was funding requirement and cash contributions. As liabilities are artificially inflated, many organizations are forced to contribute cash to their plans to meet funding requirements. This impacts financial statements and other investments, such as work force expansion or new product launches.

The poll was conducted from July to August 2012 and collected responses from 110 U.S. and Canadian executive overseeing corporate pension assets ranging from $25 million to over $1 billion. Forty-eight percent oversee more than $300 million in assets. None of the respondents were institutional clients of SEI.

The full survey results are available by emailing seiresearch@seic.com.

 

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