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Pension Funds, U.S. Insurers, and other Asset Owners Update

Most Investing Institutions Broadly in the Same Boat

Pension funds and other asset owners face similar challenges from multiple sources. Tighter regulation manifests itself in changing capital requirements for insurers, while pension fund trustees face increasing scrutiny over ESG integration. Meanwhile, most asset owners face the continuing challenges of historically low or negative interest rates and lower expected investment returns, while now having to contend with inflation data that is running 'hot'.

In this selection of papers, insights are offered on how risk-based capital changes might impact the strategies of U.S. insurers and how they used ETFs for asset allocation during Q2 2021. Other papers focus on strategies for providing income in retirement and the responsibilities of pension trustees when integrating ESG considerations into schemes. A key paper is the Thinking Ahead Institute's annual survey of the world's 300 largest pension funds.   

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Implications of U.S. Life Insurance RBC Changes (MetLife IM, 2021)

MetLife IM investigates the changes to risk-based capital (RBC) bond and real estate factors for U.S. life insurance companies and their implications for life insurers' strategic and tactical asset allocation.

How Your Cash-Flow Negative Plan Can Use Cash-Flow Aware Growth (Intech, 2021)

For compliance reasons, this paper is only accessible in certain geographies

Intech’s paper investigates alternative cash-flow sources that might assist with short and long-term funding needs. They highlight a cash-flow driven investment framework focusing on cash flow aware growth assets which may have the additional benefit of reducing volatility.

The World’s Largest Pension Funds 2021 (Thinking Ahead Institute)

This year’s Thinking Ahead Institute survey of the largest 300 pension funds finds assets up by almost 8%, and a wider acceptance of concepts such as Total Portfolio Approach, 3D investing and Universal Ownership. Risk budgets are being stretched to meet return targets, with a notable increase in allocations to private assets.

Goal-Based Retirement Investing for Income (EDHEC-Risk Institute, 2021)

EDHEC-Risk Institute’s paper analyses the issue of securing at least minimum levels of replacement retirement income, while also offering reasonable prospects of obtaining higher levels. They suggest that such strategies might offer an alternative to target date funds or annuities.

Retirement Allocations and Spending Strategies (Dimensional Fund Advisors, 2021)

In this paper from Dimensional Fund Advisors, they study how different investment and spending approaches perform. They also consider several income-based glide path strategies.

The Inflation Paradigm – Transitory or permanent? (Man Group, Sep 2021)

In this discussion piece, leading economists, academics, and central bankers consider inflation and its relation to unemployment, how expectations are set and, perhaps most importantly, whether it is likely to be transitory or permanent.

Lifetime Income Illustrations and Reactions (PGIM Defined Contribution, 2021)

PGIM Defined Contribution’s paper looks at lifetime income illustrations, how they need to be calculated, and gives examples of how they might make plan participants more aware of the income challenges and opportunities they may face.

Clearing Hurdle Targets Amid Rising Rates (Nuveen, 2021)

Nuveen’s paper highlights the challenges faced by endowments and foundations in a more challenging investment environment. It goes on to suggest how institutions might optimise their approaches to portfolio construction, and how this might help narrow the gap between targeted hurdle rates and anticipated investment returns.

ETF Transactions by U.S. Insurers in Q2 2021 (S&P Dow Jones Indices)

S&P Dow Jones Indices examines trading in ETFs during Q2 2021 by U.S. Insurers, noting significant differences between Q1 and Q2, with equity trading dominating Q2, particularly in large cap stocks.

ESG Integration for UK Pensions (Society of Pension Professionals, 2021)

For compliance reasons, this paper is only accessible in the United Kingdom

This guide from the Society of Pension Professionals offers insights for trustees into ESG integration, their legal obligations, while offering a high-level framework that they could consider using.

The UK DC Future Book 2021 (Pensions Policy Institute)

For compliance reasons, this paper is only accessible in the United Kingdom

A key chapter in this publication focuses on how Covid-19 has impacted DC investment strategies and examines whether the changes made might alleviate the worst effects of future market shocks.

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