U.S. pension funds were among the hardest hit investor classes when the financial crisis caused asset prices to plunge.
They were also among the biggest beneficiaries of the monster bull market that began in March 2009.
“We expect nearly $US150bn of annual S&P pension asset allocation equity outflows in 2014 and 2015 as the average equity allocation of S&P 500 plans drops from 45% to roughly 30%,” said Deutsche Bank’s David Bianco. “We do not see this as a threat to healthy S&P 500 returns through 2015, but it should help slow the ascent in long-term interest rates and keep corporate credit spreads tight.”
Dropping from 45% to 30% seems like a big move. And for many of you young folks, that looks like too little exposure to stocks.
But keep in mind, most companies stopped offering pensions to new employees a long time ago. And because the workers in pension plans are older and closer to retirement, the exposure to stocks are expectedly lower.
It’s interesting to note that the typical U.S. pension fund still has more exposure to stocks than pension funds from most other places in the world.
Keep in mind, different countries have different regulations, different demographics, different retirement living costs, different risk appetites, etc.
In a November 2013 note to clients, UBS’s Stephane Deo shared this chart showing how some countries invest their pension funds:
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