A new report by Greenwich Associates notes that public defined benefit (DB) pension plans in the U.S. are taking on more risk while their corporate counterparts are shedding it. The report also shows that the value of assets under management at the average U.S. DB pension plan fell 19%. It also warns that the return expectations of some public pension funds are somewhat unrealistic:
“Public funds appear to be banking on the fact that the investment strategies they are implementing will help shore up solvency ratios by generating returns that far outpace the market. Municipal pension funds last year said they expect their investment portfolios to beat relevant benchmarks by 160 basis points — up from a 132 bps expectation in 2008. Public funds with assets of $500 million or less increased their stated expected outperformance to a staggering 180 basis points in 2009 from an already aggressive 135 bps in 2008. “These are very aggressive expectations,” says Greenwich Associates consultant Chris McNickle. “Most investment managers struggle to generate the levels of outperformance expected by institutional investors; it would be rarer still for an entire portfolio to achieve that level of outperformance for any number of years.””