It is estimated that over $1 trillion dollars will be moving into or within the fixed income space globally.1 As corporate pension funds de-risk their plans to reduce the volatility of pension liabilities on companies’ financial statements. Money will come from equity and shorter-duration fixed income assets to long-duration fixed income.
Why this matters? Money moves all the time, but in this case, we believe that unless investor behavior changes, the process of de-risking these pension funds will cause these investors to unnecessarily lose billions in investment income. This paper examines why fixed income transition management makes sense regardless of the de-risking strategy.
¹ Source: Basak, S., & Chiglinksy, K. (2017). “Pensions May Yank Up to $1 Trillion From Stocks to Trim Risk” Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2017-08-28/pensions-seen-yanking-up-to-1-trillion-from-stocks-to-de-risk and Mercer (2018) “European Asset Allocation Survey Report 2018” Retrieved from: https://www.mercer.com/content/dam/mercer/attachments/private/uk-2018-european-asset-allocation-survey-report.pdf