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Alternative Market Briefing

U.S. pensions’ funding ratio rise 5% in Q4

Friday, January 08, 2016

Komfie Manalo, Opalesque Asia:

The UBS Asset Management US Pension Fund Fitness Tracker saw the funding ratio of the typical corporate U.S. pension plan rise by approximately five percentage points to 87% in the fourth quarter of 2015.

"In the fourth quarter, large equity returns made up for losses from the previous quarter and pushed pension plan funding ratios higher. Over 2015, market volatility increased, impacting plans' investment portfolios. Moreover, plan liabilities saw large movements due to fluctuating discount rates (close to 100 basis points) and to changes in the mortality tables. In general, plans with a liability hedging schedule in place experienced significantly lower funding ratio volatility. Other plans chose to capitalize on volatility by tactically allocating between asset classes, leading to dispersion in funding ratios across plans," said Frank van Etten, head of Client Solutions at UBS Asset Management.

The strong rise in Treasury yields was offset by tighter credit spreads and carry, causing liability values to remain unchanged in the fourth quarter of 2015. Investment returns of 3.2% outpaced liabilities over the quarter, causing funding ratios to increase. These estimates are based on the average corporate plan’s reported asset allocation weightings from the UBS Asset Management Pension 500 Database and p......................

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