Corporate Defined Benefit Plans Now Have “Alternatives”

June 20, 2019 | Alternative Investments

A survey indicates alternative asset managers see these plans as an emerging opportunity in the near future

Corporate defined benefit plans are generating buzz.

Outsourced chief investment officers (OCIO) are now seeing more responsibility from institutions to identify high-quality investment opportunities and extend their range over asset classes. Research by Cerulli Associates indicates these OCIOs are favorably inclined towards alternative investing given diversification benefits and scope for higher returns.

Corporate defined benefit plans may see higher alt allocations

According to “The Cerulli Edge—U.S. Asset and Wealth Management Edition, June 2019 Issue,” corporate defined benefit (DB) plans are currently underweight on alternative assets, but this could change if OCIOs have their way.

Alternative asset managers are taking their view that alt assets should be “risk-seeking” investments. This runs counter to the idea of alternatives as hedging liabilities.

OCIO providers are now sensing that institutional clients including DB plans will trim equity allocations and lean towards alternative asset classes.

Alternative assets of choice

Cerulli also shows insurance general accounts and corporate DB plans increasingly favor private debt or credit. These assets also go by the name “alternative credit.”

Another Cerulli option is “long-duration infrastructure.” This includes debt or equity from toll roads, transportation, communication infrastructure, and energy-related assets.

The latter may also prove valuable to derisking institutions.

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