Asset%Allocation%of%the%15%Largest%US%Corporate%Pension%Funds:% … · 2017-03-29 · ©!Hamersley!Partners!2017!! ! ! ! 2! 1.!Introduction! This report identifies and analyzes trends

!!!!

Research(Report((

March(2017(!

!!

Asset%Allocation%of%the%15%Largest%US%Corporate%Pension%Funds:%!( 2005,%2010,%and%2015%

!!!

!Source:!HP!research!from!SEC!104K!filings!!

!Research!Analysts!Patrick!Marquet!and!Mattias!Pavlina!

27.61%

36.51%47.38%

1.87%13.69% 9.50%

3.37% 3.90% 5.96%3.36% 2.55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015

Average(Allocations

Public(Equity Fixed(Income(&(Cash Alternatives Real(Assets Other

63.80%

44.90%

34.61%

©!Hamersley!Partners!2017! ! ! ! ! 1!

Table!of!Contents!!!1.!Introduction.………………………………………………………………………………………….2!!2.!Methodology………………………………………………………………………………………….2!!3.!Transition!from!Defined!Benefit!to!Defined!Contribution!Plans…………………………….3!!4.!Total!Asset!Allocation!!a.!Average!Total!Asset!Allocation!for!the!15!plans…………………………………..…………….....5!b.!Comparison!of!Total!Asset!Allocation!for!Corporations!in!2005,!2010,!and!2015……………...5!!5.!Fixed!Income!Allocation!a.!Average!Fixed!Income!Allocation!for!the!15!plans……………………………..……………….....8!b.!Comparison!of!Fixed!Income!Allocation!for!Corporations!in!2005,!2010,!and!2015…………...8!!!6.!Public!Equity!Allocation!a.!Average!Public!Equity!Allocation!for!the!15!plans………………..……………………………....11!b.!Comparison!of!Public!Equity!Allocation!for!Corporations!in!2005,!2010,!and!2015…………..11!!7.!Real!Asset!Allocation!!a.!Average!Real!Asset!Allocation!for!the!15!plans……………………..……………………….......14!b.!Comparison!of!Real!Asset!Allocation!for!Corporations!in!2005,!2010,!and!2015…………….14!!8.!Alternatives!Allocation!!a.!Average!Alternatives!Allocation!for!the!15!plans……………………………………………...….17!b.!Comparison!of!Alternatives!Allocation!for!Corporations!in!2005,!2010,!and!2015……..……..17!!9.!Conclusions………………………………………………………………………………………….20!!!Appendix!I:!Total!AUM!for!the!15!plans!in!2005,!2010,!and!2015………………………………..21!Appendix!II:!Definitions!of!Asset!Categories………………………………………………………..22!Appendix!III:!List!of!Specific!Terms!used!in!104K!Filings…………………….…………………....24!Appendix!IV:!Links!to!104K!Filings……………………………………………………………………27! !!!!!!!!


1.!Introduction!!This report identifies and analyzes trends in the asset allocation of the 15 largest US corporate pension plans from 2005 to 2015. These trends reflect changes in plan sponsor preferences, the economy, and the structure of retirement plans. We collected data from SEC 10-K filings and then determined the total asset allocation and the allocation within fixed income, public equity, real assets, and alternatives for each of the plans. Asset categories – which we defined in Appendix III – were selected due to their uniformity in the data available in 10-K reports. According to the data over this period, the pension plans increased exposure to fixed income, especially corporate and non-US government bonds, and shifted away from public equity, particularly US equity. Real assets (mostly real estate) steadily increased in allocation, while alternatives (mostly private equity and hedge funds) initially increased before contracting from 2010 to 2015. Given recent trends and evolving structural changes in the defined benefit market, we expect the shift towards fixed income to continue. !!2.!Methodology!!We collected data from SEC 10-K filings in 2005, 2010, and 2015, establishing a 10-year horizon that includes the 2008 financial crisis. In most cases, corporations sponsor one pension plan, but some have multiple benefit plans, including post-retirement and non-US funds. For the purposes of this report, we only analyzed data on the “primary plan” of these corporations, which is the US defined benefit pension plan. The 2010 and 2015 10-K data provide the total fair value of each sub asset category that falls under fixed income, public equity, real assets, and alternatives. In contrast, the 2005 data only lists the percent allocation of the four main asset categories. The difference in reporting might be attributed to greater financial disclosure after the 2008 financial crisis, as well as the overall movement towards greater transparency. Our analysis was limited to the extent of the data provided in 10-Ks. In this process, we calculated the percentage of the asset and sub asset categories in each individual fund based on the fair values reported in financial statements. Afterwards, we determined the average percentage of those asset categories across the 15 funds and present it at the beginning of each section. Finally, we display the asset allocation for each of the funds individually. Discussion and analysis is subsequently provided. The 15 funds were selected based on rankings in a 2015 report entitled, “The World’s 300 Largest Pension Funds.” WillisTowersWatson, a global advisory, broking, and solutions company, produces this annual report in conjunction with the U.S. investment newspaper Pensions & Investments.


3.!Transition!from!Defined!Benefit!to!Defined!Contribution!Plans!!We believe a significant factor influencing corporate pension plan asset allocation is the transition from defined benefit (DB) to defined contribution (DC) retirement plans. Under a DB plan, an employer promises a specified pension payment or lump sum to employees over some future time period, creating long term liabilities. In contrast, under a DC plan, an employer contributes a specified amount of money to a registered retirement account on the employee's behalf, thereby ending its obligation to fund future retirement benefits for employees. Today, employers typically prefer a DC plan, because it shifts the retirement responsibility to the employee. In addition, pension fund performance may not successfully cover the long term liabilities associated with running a DB plan. Consequently, many companies are freezing their DB plans and offering new employees the option to enroll in a DC plan, such as a 401(K) account. For instance, according to Wells Fargo’s 2015 10-K, the company froze their DB retirement plan in 2009. As a result, the popularity of liability driven investment (LDI) strategies has increased. Plan sponsors are implementing LDI strategies to immunize the future liabilities associated with DB pension plans until those plans are no longer in effect. Fixed income instruments are an integral part of LDI strategies, since they can provide the cash flows necessary to match pension obligations and generally carry less risk than equities. !!!!!!!!!!!!!!!!!!!


The 15 companies covered by this report include:

GM Lockheed Martin GE

Boeing United Technologies Verizon

IBM Northrop Grumman Consolidated Edison NY

AT&T Bank of America JP Morgan

Ford FedEx Wells Fargo

The 10-Ks we analyzed used the following standard asset and sub asset categories: Fixed Income ●! Corporate Bonds ●! US Government Bonds ●! Non-US Government Bonds ●! Mortgage/Asset-Backed Securities ●! Cash & Cash Equivalents ●! Commingled Funds*

Public Equity ●! US Equity ●! Non-US Equity ●! Commingled Funds*

Real Assets ●! Real Estate ●! Commingled Funds*

Alternatives ●! Private Equity ●! Hedge Funds

! * Typically, Commingled Funds represent a small percentage of total allocation and details are not disclosed. !


4.!Total!Asset!Allocation!!!a.!Average!Total!Asset!Allocation!for!15!Plans:!!

!Source:!HP!research!from!SEC!104K!filings!!!b.!Comparison!of!Total!Asset!Allocation!for!Corporations!in!2005,!2010,!and!2015:!

!Source:!HP!research!from!SEC!104K!filings!

27.61%

36.51%47.38%

1.87%13.69% 9.50%

3.37% 3.90% 5.96%3.36% 2.55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015

Average(Allocations

Public(Equity Fixed(Income(&(Cash Alternatives Real(Assets Other

63.80%

44.90%34.61%

47.00%

63.80%58.00%

61.00%72.80%

67.00%63.00% 61.00%

63.40%

71.00% 59.00% 71.00%69.00% 57.00%

73.00%

14.00%

7.00%

5.00%

7.00%

7.00%

15.90%4.00% 4.00%

2.00%

7.00% 3.30% 6.00% 3.00%

6.00%

5.00%

6.00%

5.00%

3.20%

2.00%2.00%

4.00%3.00%

6.00%

32.00% 32.90% 29.00% 31.00% 26.70% 28.00%18.00%

34.00%

17.50%27.00% 32.00%

21.00% 27.00% 33.00%25.00%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%2005(Asset(Allocation(

Other Public(Equity Alternatives Real(Assets Fixed(Income(&(Cash


!


51.05%36.01%

44.95%32.59%

42.00%

65.79%

49.21% 44.10% 39.35%50.68%

35.60%

48.23% 54.95%32.42% 46.50%

10.48%

11.54%

17.01%

13.44%

10.63%

17.31%14.63%

31.32% 1.66%

16.01%

5.21% 4.22%48.83%

3.06%5.18%

8.01%

5.09%0.29%

4.83% 7.53%

0.60%

6.85%

1.79% 6.49%

4.45% 4.62%

2.73%

38.47%47.28%

30.03%

48.89% 47.08%

29.37% 25.95%40.67%

22.47%

44.06% 41.86%35.14% 35.49%

10.06%

50.80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010(Asset(Allocation(


12.55%25.80%

47.41%

28.14%

8.38%

50.17% 40.25%

37.93%

19.95%

35.65% 37.80%

45.55%

34.53%

47.67%

47.44%17.77%

9.75%

10.53%

14.38%

15.08%

6.00%4.05%

10.79%

29.61%

6.64%

9.35%

4.94%

4.32%

4.89%

7.29%

6.27% 4.70%

9.31%

8.38%

2.71%

9.90%7.82%

3.27%10.36%

3.77%

11.50%

7.34%

4.05%

22.89%

61.05% 60.03%

32.67%

49.09%

77.21%

33.93%40.60%

48.09%40.08%

58.20%

41.25%35.53%

56.03%

24.55%

52.38%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%2015(Asset(Allocation(



Comparison*of*Total*Asset*Allocation*for*Corporations*in*2005!!!In 2005, public equity is the largest asset class in each pension plan, while fixed income is the second largest. Three out of 15 plans did not invest in real assets at all, but these outliers have a minimal effect on distribution since real assets comprised 3-7% of each fund’s total allocation. Only GM, Boeing, GE, and FedEx reported investing in alternative assets such as private equity or hedge funds. Interestingly, the companies that did not invest in alternatives invested in “other” assets at a low percentage instead. Therefore, “other” assets could actually be alternatives, but we treated it as an independent asset class since we are uncertain about this assumption. In fact, some corporations disclosed investing in assets that do not belong to any of the main categories, in which case we defined those assets as “other” as well.

!!Comparison*of*Total*Asset*Allocation*for*Corporations*in*2010!!!!In 2010, pension plans are more balanced between public equity and fixed income. To reach this point, the plans allocated more heavily into fixed income and shifted away from public equity. Alternatives remained the third largest asset class, taking up a larger proportion of total allocation in 2010 than in 2005. In fact, it was the largest asset class for JP Morgan and the second largest asset class for Verizon. Real assets consistently remained a small proportion of each fund, as only GM and FedEx did not invest in that category. Eleven out of 15 companies did not invest in “other” assets, but we believe this is partially because SEC filings disclosed more about allocation within the main asset categories. Comparison*of*Total*Asset*Allocation*for*Corporations*in*2015*!!!The trend of allocating towards fixed income and shifting away from public equity continued for pension funds in 2015. At this point in time, fixed income is consistently higher than public equity across the funds. Alternatives remain the third largest asset class, but occupy a smaller proportion of total asset allocation in 2015 than in 2010. There also appears to be a shift towards real assets, which assume a larger proportion of total allocation in 2015 than in 2010. Therefore, the allocation of alternatives and real assets are moving in opposite directions. These funds also slightly increased their investment in “other” assets, but this asset category remains the smallest. !!!!!!!!!


5.!Fixed!Income!Allocation!!a.!Average!Fixed!Income!Allocation!for!15!Plans:!

!Source:!HP!research!from!SEC!104K!filings!!b.*Comparison!of!Fixed!Income!Allocation!for!Corporations!in!2005,!2010,!and!2015:!


11.62% 12.94%

1.08%

0.74% 1.31%

2.27%

11.10%

24.21%

26.61%

4.15%

7.58%

1.92%

1.49%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2005 2010 2015

Average(Fixed(Income

US(Government NonQUS(Gov Corporate(Mortgage/Asset(Backed(( Commingled( Cash(&(Cash(EquivalentsUnspecified Other

32.00% 32.90% 29.00% 31.00% 26.70% 28.00%18.00%

34.00%

17.50%27.00%

32.00%21.00%

27.00%33.00%

10.00%

15.00%

0%

10%

20%

30%

40%

50%

60%

70%

2005(Fixed(Income

Unspecified Other


!


7.60%

25.05%

7.49% 7.64%12.44%

15.79%

7.12%

26.77%

2.32%

16.66%10.35%

5.12%

19.43%

8.03%

4.15%

5.69%

7.10%

3.14%

2.85%

6.58%

6.36%

3.53%

2.22%

1.06%

8.45%

4.07%

3.27%

4.41%

13.21%

10.74%

26.67%

23.98%

8.50%

5.32%

5.21%

6.26%

5.55%16.84%

25.00%

5.32%3.82%

27.16%

38.47%

2.36%

8.09%

1.80%

4.31%

1.06%

2.78%

2.60%

8.43%

4.00%

3.50%

1.35%30.17%

2.18%

4.98%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%2010(Fixed(Income

US(Government NonQUS(Gov Corporate(Mortgage/Asset(Backed(( Commingled( Cash(&(Cash(EquivalentsGovs(Unspecified Other Unspecified

23.44%19.05%

9.77% 11.16% 8.57%17.62% 19.03%

7.84%15.38%

4.97%

20.19%

6.79%

9.60%

9.74%

1.61% 4.38%

1.35%

4.42%

5.51%

1.23%

3.17%

3.43%

7.89%

51.30%37.60%

33.05%

18.62%

29.05%

57.06%

10.76%

1.39%

11.60%18.75%

7.64%

19.60%22.83%

15.99%

28.06%

1.24%

3.89%

1.48%

3.07%

3.12%8.39%

8.25%

1.57%0.00%

0.67%

0.93%

4.93%

2.09%

3.65%

4.20%

36.03%

7.85% 9.05%

13.04%

6.01%

1.60%

1.30%

1.10%

3.21%

0%

10%

20%

30%

40%

50%

60%

70%

80%2015(Fixed(Income

US(Government NonQUS(Gov Corporate(Mortgage/Asset(Backed(( Commingled( Cash(&(Cash(EquivalentsGovs(Unspecified Other


Comparison*of*Fixed*Income*Allocation*for*Corporations*in*2005!!The 2005 10-Ks do not break down the fixed income allocation for these pension plans. FedEx defined 15% of their total asset allocation as “other” forms of fixed income, but otherwise the companies did not specify the sub assets that their plans invested in. !!Comparison*of*Fixed*Income*Allocation*for*Corporations*in*2010!!In 2010, US government and corporate bonds comprised the majority of fixed income allocation for pension plans. The proportion of these two sub assets varies between funds. While average exposure for the 15 funds is the same at around 11% each, companies either invested in more US government bonds than corporate bonds or vice versa by a relatively significant margin. For example, IBM, Lockheed, and FedEx invested heavily in US government bonds, while Boeing, Ford, UT, and FedEx invested heavily in corporate bonds, so there is no clear trend on how companies allocated between these sub assets. Cash and cash equivalents received the third largest exposure, ranging between 5-15% of total allocation. The remaining fixed income assets such as mortgage backed securities, non-US government bonds, and commingled funds, consistently take up a small proportion of total allocation. In addition, GM did not specify the types of fixed income within its fund, while Wells Fargo listed all of its fixed income besides cash as “other.” Comparison*of*Fixed*Income*Allocation*for*Corporations*in*2015!!At this point in time, the pension plans allocated towards corporate bonds and shifted away from US government bonds. As a result, the largest fixed income sub asset is corporate bonds, with US government bonds the second largest. Nevertheless, both assets still played a significant role in 2015 allocation strategy. There is also a slight increase in exposure towards non-US government bonds, as the funds further diversified. Cash and cash equivalents remains the third largest sub asset, but plan sponsors might have invested excess cash into other assets such as corporate bonds, since the proportion of cash decreased on average from 2010-2015. GE is a significant outlier in this instance, because it had 36% of its pension assets in cash and cash equivalents, and invested minimally in other fixed income sub assets. Wells Fargo does not provide the breakdown of sub assets since the company still defined the majority of its fixed income assets as “other.” Overall, the trend in fixed income allocation over the 10-year period is increased exposure towards corporate and non-US government bonds, and a decrease in US government bond exposure. !!


6.!Public!Equity!Allocation!!a.!Average!Public!Equity!Allocation!for!15!Plans:!

!Source:!HP!research!from!SEC!104K!filings!!b.*Comparison!of!Public!Equity!Allocation!for!Corporations!in!2005,!2010,!and!2015:!


28.73%

16.86%

15.00%

12.36%

60.23%

0%

10%

20%

30%

40%

50%

60%

2005 2010 2015

Average(Public(Equities

US(Equity NonQUS(Equity Unspecified( Commingled( Other

41.00% 42.00%

53.00%

17.00%21.00%

47.00%

63.80% 61.00%

72.80%67.00%

61.00%63.40%71.00%

59.00%

71.00%69.00%

57.00%

20.00%

0%

10%

20%

30%

40%

50%

60%

70%

2005(Public(Equity

US(Equity NonQUS(Equity Unspecified((US(and(NonQUS)


!

!!Source:!HP!research!from!SEC!104K!filings!

51.05%

21.67%13.14%

21.72%

47.78%

25.85%16.93% 19.60%

34.52% 35.00%

10.37%

9.67%

13.12%

19.41%

18.01%

23.35%

18.54% 16.00%

20.44%11.51%

32.36%39.35%35.05%

48.23%

32.42%

3.65% 3.24%6.33%

0.87%8.64%

0.84%

14.78%

0%

10%

20%

30%

40%

50%

60%

2010(Public(Equity

US(Equity NonQUS(Equity Unspecified((US(and(NonQUS) Commingled( Other

12.55%

21.68%17.78%

9.19%5.35%

24.64%

3.84%

14.14%19.95%

28.65%

18.48% 20.05%22.91%

9.16%

10.16%

3.03%

25.54%

36.41%18.07%

0.59%

19.32%

2.54%

14.48%

24.53%

8.66%

4.13%

11.81%

8.80%

5.71%

6.41%

43.01%47.67%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2015(Public(Equity

US(Equity NonQUS(Equity Global/Unspecified Commingled( Other


Comparison*of*Public*Equity*Allocation*for*Corporations*in*2005!!While 12 out of 15 companies did not specify which types of equities their pension plans invested in, public equity is consistently the largest asset category in 2005. For the three companies that broke down equity into sub asset categories, the majority of each fund’s equity exposure is in US equity, while non-US equity comprises about a third of total equity exposure. We cannot assume that the allocation is the same for other companies, although we suspect that US equity remained the primary sub asset category for pension plans in 2005. !!Comparison*of*Public*Equity*Allocation*for*Corporations*in*2010!!In 2010, US equity remained the primary sub asset within public equity, with non-US equity again the second largest. US and non-US equity exposure most likely decreased, since public equity exposure decreased overall from 2005 to 2010. The proportion between US and non-US equity is similar to 2005, with a slight movement towards non-US equity but no clear trend. Five of the 15 companies did not specify their allocation between US and non-US equity in 2010, so the data on this distribution is still limited. Allocation towards commingled funds and “other” types of equity also increased, which could be a result of more disclosure in SEC filings, as well as a more diversified investment strategy. In addition, total public equity allocation varied more between companies in 2010 than in 2005. Comparison*of*Public*Equity*Allocation*for*Corporations*in*2015!!Public equity allocation decreased over the 10-year period, but the distribution varies significantly between companies in 2015 compared to previous years. This variation is readily apparent in that some companies, such as GM and Ford, invested in public equity at 12.5% and 8% respectively, while Con Edison and JP Morgan invested about 50% of their pension plan assets into equity. Non-US equity exposure is about the same as 2010 in terms of total asset allocation, but US equity continues to decline, supporting the trend that companies allocated away from US equity and towards non-US equity. Commingled funds remain the third largest equity sub asset and comprise a similar proportion of total allocation. It remains difficult to draw conclusions about UT and JP Morgan, as neither company specified the allocation of sub assets within public equity. Overall, the pension plans allocated away from public equity, but mostly from US equity, while investing in a relatively steady or decreasing proportion of non-US equity. !!!!


7.!Real!Asset!Allocation!!a.*Average!and!Median!Real!Asset!Allocation!for!15!Plans:!!For all three years, there is minimal variability between average values within the real asset category, since it mostly consists of real estate. As a result, we address their fund charts instead. !!!!!!!b.*Comparison!of!Real!Asset!Allocation!for!Corporations!in!2005,!2010,!and!2015:!


7.00%

3.30%

6.00%

3.00%

5.00%6.00%

3.20%

2.00% 2.00%

4.00%3.00%

6.00%

0%

1%

2%

3%

4%

5%

6%

7%2005(Real(Assets

Real(Estate


!


3.65%

0.29%

4.83%

7.53%

0.60%

6.85%

0.55%

6.49%

4.45% 4.62%

2.73%

5.18%

4.36%

5.09%

1.24%

0%

1%

2%

3%

4%

5%

6%

7%

8%2010(Real(Assets

Real(Estate Real(Assets Real(Estate(&(Real(Assets Real(Estate(Commingled/Mutual(Funds

6.27%4.70%

9.31%

0.79%

2.71%

9.90%

7.82%

3.27%

10.36%

0.61%

11.50%

7.34%

4.05%

6.47%

3.16%

1.12%

0%

2%

4%

6%

8%

10%

12%2015(Real(Assets

Real(Estate Real(Assets Real(Estate(&(Real(Assets Real(Estate(Commingled/Mutual(Funds


Comparison*of*Real*Asset*Allocation*for*Corporations*in*2005!!In 2005, the pension plans invested in real estate at an average allocation of 3.37%. With only three plans avoiding the asset class altogether, the allocation towards real estate is small but consistent. !!Comparison*of*Real*Asset*Allocation*for*Corporations*in*2010!!In 2010, investment in real assets maintained a similar percentage with an average allocation of 3.9%. As companies disclosed more in their 10-K filings, the reported sub asset categories within real assets expanded, including “real assets,” “real estate and real assets,” and “real estate commingled/mutual funds.” While real estate remained the top category, some companies such as AT&T differentiated between real assets and real estate. Boeing listed real assets and real estate as a single category. Real asset allocation increased overall from 2005 to 2010, with only two plans not investing in real assets in 2010. The plans with the most exposure invested in real assets at around 6-8%, versus 5-7% in 2005. !!Comparison*of*Real*Asset*Allocation*for*Corporations*in*2015*!!In 2015, the pension plans continued to increase their real asset exposure, with an average allocation of 5.96%. This value increased by around 50% from 2010. The companies with the most exposure to real assets invested at around 8-12%, versus 6-8% in 2010. Once again, two plans reported not investing in real assets, however, plans on the lower side of the distribution allocated in the 2-4% range versus a 0.3-2% range in 2010. In addition, Boeing distinguished real assets from real estate, which is the first example of a 10-K classifying a sub category besides real estate. !!!!!!!!!!!!!!


8.!Alternatives!Allocation!!a.*Average!Alternatives!Allocation!for!15!Plans:!

!Source:!HP!research!from!SEC!104K!filings!!b.*Comparison!of!Alternatives!Allocation!for!Corporations!in!2005,!2010,!and!2015:!


0.69%

6.76%5.51%

4.03%

2.75%

5.43%

3.09%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 2010 2015

Average(Alternatives(

Private(Equity Hedge(Funds Other

7.00%

2.00%

14.00%

5.00%

0%

2%

4%

6%

8%

10%

12%

14%

2005(Alternatives

Private(Equity Unspecified


!


8.36% 10.72%5.39% 3.65%

13.42%7.68%

22.81%

8.98%5.21%

1.11%

11.06%

3.06%

3.10%1.61%

3.92% 6.98%

3.88%

3.78%

8.51%

1.66%

7.04%

3.11%

18.50%

10.48%

0.08%4.68%

4.12% 3.17%

17.51%

1.76%

0%

10%

20%

30%

40%

50%2010(Alternatives

Private(Equity Hedge(Funds Limited(PartnershipsDerivatives Other(Commingled/Mutual(Funds Investment(FundsFutures Interest(Bearing(Investments Global(Strategies

7.42% 5.39%10.53%

4.64%7.57%

1.35% 4.05%9.25%

18.53%

7.37% 4.94%1.69% 0.52%

3.34%

10.35%

4.51%9.74%

7.51%

2.32%2.32%

1.54%

11.08%

1.98%

2.63% 1.03%0.98%0%

10%

20%

30%

40%

50%2015(Alternatives

Private(Equity Hedge(Funds Limited(Partnerships(Derivatives Other(Commingled/Mutual(Funds Investment(FundsFutures Unspecified


Comparison*of*Alternatives*Allocation*for*Corporations*in*2005!!In 2005, four out of 15 plans reported investing in alternatives, with a large variance in total allocation. GM allocated a substantial 14% of assets towards alternatives, while the other three companies invested 2-6%. GM and Boeing did not specify the types of alternatives their funds invested in. However, we suspect they invested in private equity because the other two funds in 2005 are comprised solely of this asset class, and private equity is the leading category by a significant amount in later years. Since the proportion of alternatives among the four companies is small and exposure across all of the funds is low, we believe that initial investment in alternatives would be composed of mostly private equity. !!Comparison*of*Alternatives*Allocation*for*Corporations*in*2010! In 2010, investment in alternatives increased considerably, with only Consolidated Edison avoiding the asset class altogether. In addition, there is significant variance in the percent allocation and the sub asset categories of alternative investment. Four plans invested 2-5% of total assets into alternatives, compared to 30% for Verizon and 49% for JP Morgan. The other funds invested around 10-15% of total assets into alternatives. Private equity and hedge funds are the top sub asset categories. However, these funds utilized 10 new sub asset categories, including multi-strategy funds, limited partnerships, global strategies, and investment funds. **Comparison*of*Alternatives*Allocation*for*Corporations*in*2015! In 2015, private equity remained the top sub asset category, with hedge funds again in second. We believe that several categories were re-classified as hedge funds, but the overall decrease in this sub category indicates that pension plans decreased allocation towards alternatives. Only GM had a significant proportion of assets in a sub category other than private equity and hedge funds, with approximately 10% in “investment funds.” Furthermore, the allocation towards hedge funds and the number of plans invested in hedge funds altogether both decreased. Eight pension plans invested in hedge funds in 2015, compared to 10 in 2010. !!!!!!!!!


9.!Conclusions!!These are our primary conclusions about pension plan asset allocation between 2005 and 2015: ●! Fixed income exposure increased for all plans. In particular, allocation towards corporate

and non-US government bonds increased, while US government bonds decreased.

●! Public equity exposure decreased, especially US equity. Investment in non-US equity also decreased.

●! Allocation towards real assets, which is mostly real estate, steadily increased.

●! Alternatives increased in allocation from 2005 to 2010, and then decreased from 2010 to

2015, with hedge funds decreasing significantly during the latter period. !


Appendix!I:!Total!AUM!for!the!15!plans!in!2005,!2010,!and!2015! As summarized by their respective SEC filings, the 15 largest funds and the size of their funds (in millions USD) are:

Corporation Size of Fund (2005) Size of Fund (2010) Size of Fund (2015)

1. General Motors 95,250 24,278 61,072

2. Boeing 43,484 48,893 56,245

3. IBM 48,608 50,864 51,715

4. AT&T 48,755 54,649 46,787

5. Ford Motor 41,857 40,881 41,461

6. Lockheed Martin 23,432 27,131 33,866

7. United Technologies 18,131 21,779 30,720

8. Northrop Grumman 18,867 24,198 25,103

9. Bank of America 13,097 19,917 23,505

10. FedEx 8,534 13,055 23,006

11. General Electric 49,096 44,801 17,368

12. Verizon 40,990 25,814 16,124

13. Consolidated Edison NY 7,214 8,235 12,608

14. JP Morgan 9,617 11,140 10,139

15. Wells Fargo 4,944 10,065 8,768 !Source:!HP!research!from!SEC!104K!filings! !!!!!!


Appendix!Part!II:!Definition!of!Asset!Categories!! Fixed Income: Securities where owners lend capital in exchange for a return or periodic income at regular intervals and at reasonably predictable levels. ●! Corporate Bonds: A debt security issued by a corporation and sold to investors. The

backing for the bond is usually the payment ability of the company. Corporate bonds face default risk, or the risk that the company cannot make interest payments. This results in higher interest rates to compensate the investor compared to “risk free” government bonds.

●! US Government Bonds: Owners lend money to the US government for a specified period of time in return for interest payments. This may include US treasuries and agencies, US government sponsored enterprises (GSEs), and municipalities. Considered the safest of all investments because debt obligations are backed by the “full faith and credit” of the US government.

●! Non-US Government Bonds: Owners lend money to foreign governments. These bonds carry credit, political, and currency risks that US government bonds do not face. Investors typically invest in foreign government bonds to obtain a higher yield.

●! Mortgage/Asset-Backed Securities: Investors lend money to a home buyer or business. These securities are a way for a banks to lend mortgages to its customers without having to worry about whether the customers have the assets to cover the loan. Instead, the bank acts as an intermediary between the home buyer and the investment markets. MBS redirect the interest and principal payments from the pool of mortgages to shareholders.

●! Commingled Funds: A fund consisting of fixed income assets from several accounts that are blended together. Examples include common/collective/pooled/mutual funds.

●! Cash & Cash Equivalents: The most liquid asset. Cash equivalents are short-term commitments with temporarily idle cash and easily convertible into a known cash amount. Examples include interest bearing cash and foreign exchange contracts.

Public Equity: An asset class where individuals and organizations can buy ownership in shares of a company through a public market such as the New York Stock Exchange. Owners generate wealth through an increase in the valuation of a stock known as capital gains, and/or a payment made by a corporation to its shareholders called dividends. ●! US Equity: Stocks representing ownership of publicly-traded US companies. ●! Non-US Equity: Stocks representing ownership of publicly-traded international

companies. Generally riskier than US equity due to the political and economic risks of foreign governments, but offer higher growth potential.

●! Commingled Funds: A fund consisting of public equities from several accounts that are blended together. Investors benefit from economies of scale, which allow for lower trading costs per dollar of investment, diversification, and professional money management.


Real Assets: Physical assets that have value due to their substance and properties. Hedge against macroeconomic and inflationary risks due to relatively low correlation with financial assets such as stocks and bonds. ●! Real Estate: Ownership of land and any improvements on it. ●! Commingled Funds: A fund consisting of real assets from several accounts that are

blended together. Alternative Assets: Non-traditional assets with potential economic value that are not found in a standard investment portfolio. Due to the unconventional nature of alternative assets, valuation of these assets can be difficult. ●! Private Equity: Part ownership of private companies that are not publicly traded on a

stock exchange. Investors provide capital that can be utilized by the company to fund new technology and make acquisitions. ○! Venture Capital: A type of private equity where investors fund small, early-

stage, emerging companies that have high growth potential but also have higher risks.

●! Hedge Funds: A fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management technique. These funds face less SEC regulation compared to mutual funds.

●! Derivatives: A contract that derives its value from the performance of an underlying entity. This entity can be an asset, index, or interest rate. Derivatives can be used to insure against price movements, increase exposure to price movements for speculation, or gain access to otherwise hard-to-trade assets or markets. ○! Futures: A type of derivative where the parties initially agree to buy and sell an

asset for a price agreed upon today (the forward price), with delivery and payment occurring at a future point, the delivery date.

!!!!!!!!!!!!!


Appendix!Part!III:!List!of!Specific!Terms!used!in!10TK!Filings!!Fixed Income US Government US Government US Government Securities US Government Issued Debt US Treasuries and Agencies US Treasuries US Government Agency US Government and Government Agency Securities Governments Fixed Income Securities US Gov and Agencies Government and Related Government and Agency Debt Securities(a) US Government Sponsored Enterprises (GSE’s) US Government Sponsored Enterprise Securities Government and Municipal Bonds Fixed Income Securities Municipal Non-US Government Other Fixed Income Debt Non-US Government Fixed Income Securities Sovereign International Bonds Unspecified Governments Governments Corporate Corporate Bonds Corporate Debt Corporate Bonds Debt Corporate Bonds – Investment Grade Corporate Bonds – High Yield Corporate Bonds – Other Credit Corporate Debt Securities Corporate US Debt Securities Corporate and Other Debt Securities Corporate and Other Fixed Income Instruments & Funds Fixed Income Securities Corporate Mortgage/Asset Backed Mortgage and Asset Backed Securities Mortgage/Other Asset-Backed


Mortgage Backed Securities Asset Backed Securities Structured Assets Debt Collateralized Mortgage-Backed Securities Collateralized Mortgage Obligations/REMICS Commingled Commingled Funds Fixed Income Common/Collective/Pooled Funds Fixed Income Commingled/Mutual Funds Cash and Cash Equivalents Cash Cash and Cash Equivalents Cash Equivalents and Other Short-Term Investments Fixed Income and Cash Investment Funds Cash and Cash Equivalent Commingled/Mutual funds Interest Bearing Cash Foreign Exchange Contract Other High Yield Debt Long Duration Fixed Income Intermediate (Core) Fixed Income International Fixed Income Speciality Fixed Income Bank Loans Convertable and Preferred Securities Fixed Income Other Fixed Income Securities Other Other Debt Securities Other Fixed Income Investments Other Real Assets Real Assets Real Estate Real Estate and Real Assets Real Estate Commingled/Mutual Funds Alternatives Private Equity Hedge Funds Venture Capital Derivatives Other Commingled/Mutual Funds


Multi-Strategy Funds Investment Funds Futures Interest Bearing Investments Global Strategies Commodities Limited Partnerships Unspecified Alternatives Equity Unspecified Equity Equity Securities Global Equity Enhanced Global Equities Global Equities Funds Global Equity Commingled Funds Enhanced Global Equities US Equity Stocks Equity Public Equity Domestic/US Equity US Large Cap US Mid Cap US Small Cap US SMID Cap Non-US Equity International Equity Global Equity Emerging Markets Foreign/Non-US Equity Commingled Commingled Funds Commingled Equity Funds Equity Commingled/Mutual Funds Equity Common/Collective Pooled Funds Other Public Real Estate Investment Trusts Securities Lending Collateral !


Appendix!Part!IV:!Links!to!10TK!Filings!!General Motors (GM) 2005 II-106: https://www.sec.gov/Archives/edgar/data/40730/000095012406001534/k03376e10vk.htm 2010 p233: https://www.sec.gov/Archives/edgar/data/1467858/000119312511051462/d10k.htm 2015 pg. 81: https://www.sec.gov/Archives/edgar/data/1467858/000146785816000255/gm201510k.htm Boeing 2005 pg. 93: https://www.sec.gov/Archives/edgar/data/12927/000119312506040952/d10k.htm 2010 pg. 89: https://www.sec.gov/Archives/edgar/data/12927/000119312511028490/d10k.htm 2015 pg. 92: https://www.sec.gov/Archives/edgar/data/12927/000001292716000099/a201512dec3110k.htm International Business Machine (IBM) 2005 EX-13 pg. 93: https://www.sec.gov/Archives/edgar/data/51143/000104746906002608/a2166922zex-13.htm 2010 EX-13 pg. 121: https://www.sec.gov/Archives/edgar/data/51143/000104746911001117/a2201254zex-13.htm 2015 EX-13 pg. 136: https://www.sec.gov/Archives/edgar/data/51143/000104746916010329/a2226548zex-13.htm AT&T 2005 EX-13 p89: https://www.sec.gov/Archives/edgar/data/732717/000073271706000008/ex13.htm 2010 EX-13 p65: https://www.sec.gov/Archives/edgar/data/732717/000073271711000014/ex13.htm 2015 EX-13 p81: https://www.sec.gov/Archives/edgar/data/732717/000073271716000147/ex13.htm Ford Motor Company 2005, pg. 39: https://www.sec.gov/Archives/edgar/data/37996/000003800906000031/fmc10k2005.htm 2010 FS-58: https://www.sec.gov/Archives/edgar/data/37996/000115752311001210/a6622311.htm 2015, FS-38: https://www.sec.gov/Archives/edgar/data/37996/000003799616000092/f1231201510-k.htm


Lockheed Martin 2005, pg. 111: https://www.sec.gov/Archives/edgar/data/936468/000119312506040986/d10k.htm#tx98632_21 2010 p74: https://www.sec.gov/Archives/edgar/data/936468/000119312511045739/d10k.htm 2015 p96: https://www.sec.gov/Archives/edgar/data/936468/000119312516476010/d62685d10k.htm United Technologies 2005 EX-13 p35: https://www.sec.gov/Archives/edgar/data/101829/000119312506024473/dex13.htm 2010 EX-13 p45: https://www.sec.gov/Archives/edgar/data/101829/000119312511029695/dex13.htm 2015 EX-13 p58: https://www.sec.gov/Archives/edgar/data/101829/000010182916000050/a2015-12x3110xkexhibit13.htm Northrop Grumman 2005 p90: https://www.sec.gov/Archives/edgar/data/1133421/000119312506034521/d10k.htm 2010 p100: https://www.sec.gov/Archives/edgar/data/1133421/000095012311010835/v57435e10vk.htm 2015 p67: https://www.sec.gov/Archives/edgar/data/1133421/000113342116000065/noc-12312015x10k.htm Bank of America 2005 p142: https://www.sec.gov/Archives/edgar/data/70858/000119312506056053/d10k.htm 2010 p215: https://www.sec.gov/Archives/edgar/data/70858/000095012311018743/g25571e10vk.htm 2015 p220: https://www.sec.gov/Archives/edgar/data/70858/000007085816000137/bac-1231201510xk.htm FedEx 2005, pg. 59: https://www.sec.gov/Archives/edgar/data/1048911/000110465906046980/a06-14845_110k.htm#Item15_ExhibitsFinancialStatement_173445 2010, pg. 105: https://www.sec.gov/Archives/edgar/data/1048911/000095012311065246/c19556e10vk.htm#C19556125 2015, pg. 103: https://www.sec.gov/Archives/edgar/data/1048911/000119312516650267/d207174d10k.htm#tx207174_18a


General Electric (GE) 2005, EX-13 pg. 79: https://www.sec.gov/Archives/edgar/data/40545/000004054506000009/ex13.htm 2010 p140: https://www.sec.gov/Archives/edgar/data/40545/000119312511047479/d10k.htm 2015 p206: https://www.sec.gov/Archives/edgar/data/40545/000004054516000145/ge10k2015.htm Verizon 2005, EX-13 Note 15: https://www.sec.gov/Archives/edgar/data/732712/000119312506053710/dex13.htm 2010 EX-13 Note 12: https://www.sec.gov/Archives/edgar/data/732712/000119312511049476/dex13.htm 2015 EX-13 Note 11: https://www.sec.gov/Archives/edgar/data/732712/000119312516473367/d35513dex13.htm Consolidated Edison NY 2005, pg. 89: https://www.sec.gov/Archives/edgar/data/23632/000119312506036760/d10k.htm 2010 p119: https://www.sec.gov/Archives/edgar/data/23632/000119312511042145/d10k.htm 2015 p116: https://www.sec.gov/Archives/edgar/data/23632/000104786216000225/ed-20151231x10k.htm JP Morgan 2005, pg. 99: https://www.sec.gov/Archives/edgar/data/19617/000095012306002875/y17599e10vk.htm 2010, pg. 206: https://www.sec.gov/Archives/edgar/data/19617/000095012311019773/y86143e10vk.htm#Y86143134 2015, pg. 228: https://www.sec.gov/Archives/edgar/data/19617/000001961716000902/corp10k2015.htm#s93506E740C625DB29E96EC6246A6F83A: Wells Fargo 2005, EX-13 pg. 89: https://www.sec.gov/Archives/edgar/data/72971/000095014906000083/f17867exv13.htm 2010, EX-13 pg. 206: https://www.sec.gov/Archives/edgar/data/72971/000095012311018541/f56816exv13.htm 2015, EX-13 pg. 249: https://www.sec.gov/Archives/edgar/data/72971/000007297116001045/wfc-12312015xex13.htm !

Documents

Asset%Allocation%of%the%15%Largest%US%Corporate%Pension%Funds:% … · 2017-03-29 · ©!Hamersley!Partners!2017!! ! ! ! 2! 1.!Introduction! This report identifies and analyzes trends