Casting for Returns
CFO (08/03) Vol. 19, No. 10 p.49; Myers, Randy

Plan sponsors with underperforming portfolios are using alternative investments to rejuvenate their pension monies. Falling interest rates and slumping equity markets have wreaked havoc on pension plans. Credit Suisse First Boston estimates that the assets of companies in the Standard & Poor's (S&P) 500 depreciated by $173 billion between 1999 and 2002. According to Credit Suisse, the average S&P 500 corporate pension plan declined 8.65 percent in 2002 and 7.37 percent the year before. Meanwhile, the current value of the S&P 500's collective pension obligation has risen by $289 billion due to falling interest rates. The situation has left plan sponsors with no other option but to supplement their portfolios with alternative lines of investments. These may include hedge funds, private equity, or real estate. Research shows the infusions have helped reinvigorate many pension plans. Greenwich Associates reports that allocations to hedge funds among large corporate pension plans doubled in 2002, to 0.4 percent of all plan assets, while allocations to real estate rose to 2.3 percent from 2.1 percent.

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