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2012 State Street Asset Owner StudyResults for Defined Benefit Pension Sector

Executive Summary

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2012 State Street Asset Owner Study

• This study, sponsored by State Street and conducted by Asset International, examines key trends across the institutional asset owner community in relation to:

– Asset allocation and liquidity management

– Data, risk and transparency

• An online survey was fielded from July 23 to August 2 and garnered 116 valid responses, including 57 from the defined benefit pension sector.

– Of these 57 responses, 84 percent were from the US, with the remainder from Canada, Europe and Asia Pacific.

• We also had in-depth conversations with 13 senior decision-makers at 11 endowment, foundation and healthcare organizations in the US to gain additional insights.

About the Research

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Post-Crisis Thinking: Liquidity

• Post-crisis, liquidity is a greater driver for the entire asset allocation process, serving as a new cornerstone for many investors (i.e., “liquidity budgeting”).

• Boards and investment committees are focusing on liquidity and risk more than ever before, requiring more detailed reporting and analysis.

– 81 percent of pension funds report that demands from internal governance and risk management functions are a challenge

• State Street can deliver a wide array of liquidity management solutions that are tailored to the individual needs of pension funds.

Many pension funds experienced liquidity problems during the financial crisis and are subsequently re-evaluating their approach. They are able to take advantage of a wide variety of tools to help them achieve a

more robust, holistic liquidity management framework.

Top 5 Actions Taken in Response to the Liquidity Challenges of the Financial Crisis

DB Pension Sector

Note: Multiple responses accepted

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Post-Crisis Thinking: Asset Allocation

• The pressure of meeting funding demands within a low-yield environment remains steady.

– 45 percent of pension respondents say the low-yield environment has increased their appetite for alternative strategies

– 30 percent of public plans anticipate expanding their allocation to emerging market debt in the coming year

• Liability-driven investing continues to gain traction across the industry, as pension funds add to their fixed income positions to better align with liability streams.

– 39 percent of corporate plans expect to increase allocations to corporate investment-grade debt in the coming year

Pension funds are fine-tuning their asset allocation strategies, seeking to modify their portfolio mix to balance the need for liquidity with the need for returns.

Has the current low-yield market environment increased your organization’s appetite for alternative investment

strategies to meet funding demands?

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Current Challenges in Data Integration

• 47 percent of DB pension respondents rated their ability to achieve a comprehensive portfolio look-through as less than good.

– Just one-quarter of public plans and 5 percent of corporates are very confident in this capacity, reporting an “excellent” ability to gain a comprehensive look-through of their portfolio

– More than 58 percent of all DB pension funds expect their data management challenges to increase over the next three years

• Increased complexity stemming from alternative investing is a key issue impacting data integration for pension funds, with 34 percent citing this as a “significant” challenge.

– Still widespread lack of manager transparency, industry-wide

Pension funds are especially challenged by data integration and are managing through it as best as they can.

How would you rate your ability to integrate data from disparate sources to achieve a comprehensive “look

through” of your portfolio across all security types and investment structures?

Source: 2012 State Street Asset Owner StudyCORP-0636

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Current Challenges in Talent Acquisition and Management

• In terms of acquiring talent, pension funds cite investment management, risk management and asset allocation as their areas of greatest challenge.

– Public funds report encountering difficulties with talent more acutely than their corporate counterparts

• Achieving a balance between generalists and specialists within a pension fund is paramount.

Talent gaps exist for pension funds – overcoming these will be critical to meet tomorrow’s challenges.

Does your organization experience difficulty in hiring knowledgeable, qualified staff in any

of the following areas?

Note: Multiple responses accepted

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Appendix

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Please indicate the extent to which you agree or disagree.Our organization has access to portfolio investment data that:

Source: 2012 State Street Asset Owner Study

Note: Multiple responses accepted. Percentages shown exclude respondents who selected “Neutral” or “N/A.”

DB Pension Respondents

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For each of the following, please indicate the extent to which it poses a challenge for your organization:

Note: Multiple responses accepted. Percentages exclude respondents who selected “N/A for my organization.”

Source: 2012 State Street Asset Owner Study

DB Pension Respondents

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Over the past three years, have your data management

challenges:

Over the next three years, do you anticipate that your data management

challenges will:

Source: 2012 State Street Asset Owner Study

DB Pension Respondents

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