PLANSPONSOR - February/March 2018 - 55

Dessner, a client portfolio manager on the
multi-asset solutions team of J.P. Morgan
Asset Management in New York City.
" Correlations among individual stocks,
sectors and stock markets have fallen, so
diversifying a portfolio beyond the U.S.,
into different regions and styles, actually
results in lower volatility. It's a really
positive environment, and many plans are
comfortable with investing their equity
exposures beyond the shores of the U.S. "
Greenwich Associates, a financial
firm in Stamford, Connecticut, recently
completed a wide-ranging survey of institutions'
manager hiring and echoes that
sentiment: " We've seen real interest in
some of the higher-octane opportunities
such as global and emerging market
equities, so the manager hiring has been
robust, " notes Andrew McCollum, head of
the firm's U.S. practice.
Others look at the market landscape
in the rear-view mirror and admire the
breathtaking altitude, but they advise
more caution going forward. " We think
valuations are high, and there is more
risk to the downside at the moment, " says
Brubaker. " For clients that are invested
in passive strategies, exposures are
becoming skewed to the small number
of growth stocks that have dominated the
market for the past several years. "
He adds, " We're looking for ways to
protect on the downside with liquid assets.
One is low-volatility equity, a passive
approach with passive fees that tends to lop
off some downside. We are also looking at
defensive equity strategies that incorporate
option overlays or futures that hedge
some of the tail risk in the portfolio. "
Liquidity is essential for those plans that
are on a systematic funding glide path
and committed to moving risk assets into
bonds at a moment's notice, he points out.
Others encourage cutting back on
equity. Citing exposure to high-flying
large tech stocks, John Delaney, portfolio
manager in Willis Towers Watson's
Philadelphia office, says, " Given where
valuations are, at some point the party
has to end. We're trying to reduce plans'
Average Asset Allocation by Investment Class
2009
2013
2016
2009
l Equity
l Fixed income
l Total alternatives
Hedge funds
Private equity
Real estate
l Other
l Cash
Source: Willis Towers Watson
reliance on the equity risk premium
and access different drivers of return
including manager skill, illiquidity and
credit-although not corporate credit so
much at this point, as that, as with equities,
offers poor value. " He cites alternative
assets such as hedge funds, direct
real estate and select private equity and
illiquid investments.
McCollum reports strong interest in
alternatives. " Private equity demand has
been robust, " he says. " Real estate has
gained traction as well-usually it has
been third in line behind private equity
and hedge funds. But last year we saw
a tipping point for hedge funds, where
expected decreases to allocations were
greater than expected increases. "
" People are backing away from the
idea that hedge funds are an asset that can
both mitigate volatility and add return, "
observes Dessner, " and more are looking
to curate their hedge fund exposures, and
own them to address specific risks. "
Delaney emphasizes diversity and
flexibility. " This is not the easiest point
to convey, in a world generally defined
by time-weighted returns, but the path
of returns is important-a plan can earn
5% annualized owning all equities or 5%
owning a lot of different things, " he says.
" If I have a less volatile path from a more
diverse portfolio that experiences smaller
drawdowns in times of stress, at the end
of the period I end up with more money.
Dynamically managing the portfolio can
pay a lot of dividends in navigating expensive
markets. " -John Keefe
KEY POINTS
* Corporate defined benefit plan
aggregate funding levels are
around 80%; plan sponsors have
to invest or contribute to reach
full funding.
* Some are enthusiastic about
investing in equities beyond the
U.S.; alternatives such as real
estate are popular and stand just
behind private equity and hedge
fund strategies.
* Investment diversity and flexibility
can be key to maximizing
returns.
PLANSPONSOR.com February-March 2018 55
50.8%
35.1%
5.3%
2.1%
1.5%
1.7%
4.2%
4.4%
2013
47.7%
38.4%
8.0%
3.1%
2.6%
2.3%
3.0%
2.9%
42.1%
43.3%
8.0%
3.1%
2.6%
2.3%
3.7%
2.9%
2016 Net Change '09 - '16
-8.7%
8.2%
2.7%
1.0%
1.1%
0.6%
-0.5%
-1.5%
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