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Pensions Worried About Being Fully Funded First… Even as They Warm to Hedge Funds Again

SEI this week issued what appeared to be a positive poll regarding pension plans and hedge funds: they’re warming to alternatives again in 2010, SEI’s latest poll said.

But the real story was buried in the press release “SEI Quick Poll: Pension Plans Increase Use of Alternative Investments”. In fact, ahead of hedge fund allocation, more than half of the pension managers are worried simply about funding their retirement programs in full, and keeping their doors open. Yikes!

Yes, the SEI (SEIC) Quick Poll shows a significant increase in pension portfolios investing in alternatives, when compared to the previous two years. In 2008, 51 percent of pension executives surveyed said their pension portfolio was invested in alternatives. In 2009, that was 53 percent. This year’s poll saw an increase to 65 percent.

But 88 percent — nearly all pension executives — viewed improved funded status as a benchmark more important than increasing absolute returns. Additional priorities included improving funded status, creating a long-term pension strategy, stress-testing the portfolio, increasing due diligence, and defining the role of consultants and investment professionals providing advice to pensions.

“Funding deficiencies are getting the attention of various stakeholders in companies and, as a result, boards and senior management,” said Jon Waite, Director, Investment Management Advice and Chief Actuary for SEI’s Institutional Group. “A plan’s funded status is the top priority.”

The zinger: MORE THAN HALF of pensions are closed to new entrants and accruals have ended for current participants. According to poll respondents, 53 percent of the pension plans are either closed or frozen, up 10 percent versus 2009. compared to a similar survey conducted in August 2009. Respondents were asked if their plan were fully funded, would they still look to terminate the plan as soon as possible. Of those that already have frozen their plan, nearly three-quarters (73 percent) said they would look to terminate the plan. Of those with active plans, 75 percent said they would not look to terminate it.

The poll was completed by 85 pension executives overseeing assets ranging in size from $25 million to $10 billion. Of the respondents, 36 percent oversee more than $300 million in assets. None of the respondents were institutional clients of SEI.

For a copy of the complete survey results, email seiresearch@seic.com.

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