PoiN Tsofi NTEREs T
“The number blew away my wildest expectations,” “other places that have done this, like Chicago,”
Ravenstahl says to the cameras as his young and Ravenstahl says; the bids; the hopefully successful
charming press secretary buzzes around the room, Council vote; the topping-up of pension funding—
attempting to keep the one openly dissident Council is all simply a beginning to a difficult journey. If
member in attendance—a political opponent who everything goes as planned, the pension will be only
is rumored to want Ravenstahl’s job—away from 50% funded, still one of the worst funded plans in
impressionable reporters. “Clearly, it will solve this America. Ravenstahl, by noting that treading water
year’s pension problem”—the total estimate for the is not an ideal situation, clearly understands the
pension top-up plus paying off the parking system’s challenge that awaits his potentially long reign as
debt is $320 million—“plus provide additional the Mayor of Steeltown. Whether he can convince
revenue to put into the pension or something else,” others—the City Councilors, the reporters, the
the Mayor adds. people who will see the press conference on the
7:00 p.m. news—is anything but clear.
It is a victory, to be sure, but one that may obscure
the larger issue. This process—the idea, taken from
For the latest on this story, click here.
With interest rates creeping to record lows during 2010, the
present values of pension liabilities are reaching new heights
and, with only modest and tenuous gains in stock portfolios, the
funding ratios of U.S. corporate pensions have reached a milestone
as well—just 70.1% in August, says the actuarial firm Milliman, Inc.
Sponsors have a pressing need to control their plans’ interest-rate risk,
and consultants and managers are pointing to methods that bring
greater discipline and potency to the de-risking challenge.
By John Keefe
Even though surveys of corporate defined benefit plans report that
most have adapted some sort of controls over the reactions of liability
values to interest rates, whatever steps they’ve taken aren’t enough. The
funding ratio of the 100 largest corporate plans estimated by Milliman
falls short even of the 70.3% recorded in May 2003—after the perfect
storm that brought asset-liability management onto sponsors’ radar
screens. Looking forward, a JPMorgan Asset Management survey
finds that, on average, sponsors plan to add just 2% to their strategic
fixed-income allocations over the next three years.
(Regarding mitigating interest rates’ effects on pension funding, the
latest downturn has brought a change to the investment lexicon. The
several methods of reducing interest-rate sensitivity are now referred
to as “pension de-risking,” and LDI now is more specifically used to
describe the end state—fixed-income strategies that exactly match a
Seeking to maximize the value and
minimize the risk of DB plans.
Pyramis custom LDI solutions
At Pyramis we understand that the success of an
LDI program requires timely periodic adjustments
to your portfolio and strategy to stay on course
through an uncertain business climate and volatile
capital markets. In choosing Pyramis you will
benefit from the pro-active collaboration of an
experienced LDI Strategy Team that is focused on
meeting your objectives, and is supported by the
resources of one of the largest and most stable
investment management firms in the US.1
Pyramis manages more than $50 billion2, 3 in a
wide range of fixed-income strategies, including
a full suite of LDI solutions. We have developed
proprietary research and insights into the DB market
and LDI strategies, which we share with our clients.
Visit Pyramis.com/ldi-whitepapers for our insights
on LDI solutions as well as information from
our 2010 Global DB Survey.
For more information about Pyramis and our custom
LDI solutions, contact Mike Senoski, vice president
and LDI investment director, at 401-292-4753,
or visit Pyramis.com.
Resources depicted reflect the combined resources of Pyramis, Fidelity
Investments, and Fidelity Investment Managers, as of June 30, 2010.
As of June 30, 2010.
Fidelity’s total fixed income assets are over $310B as of June 30, 2010.
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8 | ai-CIO.com | October 2010
10/7/10 12:05:02 PM
10/25/10 11:55 AM