Mark Ruloff, director of asset allocation at Watson Wyatt
Pension Plan Sponsors Changing Investment Focus, Watson Wyatt Finds
New Pension Laws Spark Move to Long-Term Investment Strategies
WASHINGTON, November 1, 2006 – As companies react to the Pension Protection Act and new accounting rules, they will likely consider investment approaches that better hedge their long-term pension liabilities, according to experts at Watson Wyatt Investment Consulting, a leading global consulting firm.
“With the recently enacted pension reform law and new accounting rules, plan sponsors are shifting risk strategies,” said Mark Ruloff, director of asset allocation at Watson Wyatt. “Higher funding targets, restrictions on smoothing and requirements for valuing pension assets and liabilities at a market basis are prompting companies to look for more predictable returns through liability-driven investing.”
According to Ruloff, Watson Wyatt has recommended the use of liability-driven strategies in more than 90 percent of its asset allocation work for U.S. companies conducted in the past year. Watson Wyatt’s asset allocation methodology makes extensive use of liability-driven investment concepts to achieve funding status predictability in the post-reform environment. These concepts include decreasing public equity investment in favor of fixed income and alternatives and enhancing alpha opportunities (performance that exceeds benchmarks).
The move is part of a global trend to more closely match pension investments with plan liabilities, instead of focusing solely on the amount of assets in the plan. In the United Kingdom, for instance, Watson Wyatt has been an adviser on nearly 70 over-the-counter derivative and related executions for Sterling-based institutions, with a total nominal exposure of approximately £32 billion.
“A greater emphasis on liability-driven investing will help U.S. companies get ahead of the curve by providing plan sponsors with enhanced protection and performance over the long term,” said Carl Hess, director of Watson Wyatt’s investment consulting in North America. “That can only help the overall health of the defined benefit system.”
About Watson Wyatt Investment Consulting
Watson Wyatt Investment Consulting, a division of Watson Wyatt, is focused on creating financial value for institutional investors through independent, best-in-class investment advice. The firm provides coordinated investment strategy advice based on expertise in risk assessment, strategic asset allocation, and investment manager selection to some of the world’s largest pension funds and institutional investors. It has more than 300 associates in Europe, the Americas and Asia. In the United States, investment advisory and investment consulting services are provided by Watson Wyatt Investment Consulting, Inc., which is a subsidiary of Watson Wyatt Worldwide, Inc. Watson Wyatt Investment Consulting, Inc., is a registered investment adviser with the Securities and Exchange Commission.
About Watson Wyatt Worldwide
Watson Wyatt (NYSE: WW) is the trusted business partner to the world’s leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 6,000 associates in 30 countries and is located on the Web at www.watsonwyatt.com.
Contact
Ed Emerman, 609/452-5967, eemerman@eaglepr.com
Emily Rieger, 703/258-7634, emily.rieger@watsonwyatt.com
http://www.watsonwyatt.com/news/press.asp?ID=16678