Plan sponsors are becoming increasingly comfortable with the idea of managing some chunk of their assets in-house.
Although only 22.5 percent of respondents to this month’s Pensionforum survey say some portion of their assets is managed by their internal staff, 13 percent of respondents say that number is higher than it was five years ago.
The proportion of assets managed in-house covers a wide range: 33.3 percent say that less than 10 percent of assets are managed internally, but an additional 33.4 percent say that proportion is between 21 and 60 percent. A courageous minority - 16.7 percent - manage more than 80 percent of their assets in-house.
For the most part, the assets that plan sponsors choose to manage in-house are chiefly U.S. stocks - 52.6 percent of respondents - and bonds - 57.9 percent. Still, some are using internal help to oversee more esoteric asset classes:
Internal managers oversee venture capital for 10.5 percent of respondents.
The in-house money isn’t just in index funds. Some 30 percent of plan sponsors say their in-house money is actively managed, while just 20 percent say it is passively managed. The remaining 50 percent use a combination of the two. The numbers are even higher in fixed income: 72.7 percent of respondents say internally run bonds are actively managed.
Running assets internally is certainly cheaper than using external managers, but does it produce acceptable investment returns? The answer seems to be yes. Some 80 percent of respondents say their in-house equity portfolios have outperformed the Standard & Poor’s 500 index, or some other benchmark, over the past year, and 90.9 percent say their in-house bond portfolios have outperformed their indexes over the same period.
Are any of your fund’s defined-benefit-plan assets managed internally?
Yes 22.5%
No 77.5
If so, what portion?
10 percent or less 33.3%
11 to 20 percent 5.6
21 to 40 percent 16.7
41 to 60 percent 16.7
61 to 80 percent 11.1
More than 80 percent 16.7
How does this compare with five years ago?
Higher 13.0%
Lower 8.7
About the same 78.3
What kinds of investments do you manage internally?
U.S. equities 52.6%
U.S. fixed income 57.9
International equities 26.3
International fixed income 5.3
Real estate 31.6
Cash and short-maturity securities 68.4
Private placements 10.5
Venture capital 10.5
If you managed any assets in-house five years ago, what kinds did you manage?
U.S. equities 50.0%
U.S. fixed income 50.0
International equities 20.0
International fixed income 10.0
Real estate 35.0
Cash and short-maturity securities 50.0
Private placements 5.0
Venture capital 10.0
If you run equities in-house, how are they managed?
Actively 30.0%
Passively 20.0
A combination 50.0
If you run bonds in-house, how are they managed?
Actively 72.7%
Passively 18.2
A combination 9.1
Over the past 12 months, has your in-house equity portfolio outperformed the Standard & Poor’s 500 index or other appropriate benchmark?
Yes 80.0%
No 20.0
Over the past 12 months, has it outperformed the median return for comparable outside equity managers?
Yes 100.0%
Over the past 12 months, has it outperformed the median return for your fund’s outside equity managers?
Yes 18.2%
No 27.3
Not applicable 54.5
Over the past five years, has the equity portfolio outperformed the S&P 500 or other appropriate benchmark?
Yes 83.3%
No 16.7
Over the past five years, has it outperformed the median return for comparable outside equity managers?
Yes 90.9%
No 9.1
Over the past five years, has it outperformed the median return for your fund’s outside equity managers?
Yes 36.4%
No 18.2
Not applicable 45.5
Over the past 12 months, has your in-house bond portfolio outperformed the outside bond index that most closely resembles it?
Yes 90.9%
No 9.1
Over the past 12 months, has it outperformed the median return for comparable outside bond managers?
Yes 100.0%
Over the past 12 months, has it outperformed the median return for your fund’s outside bond managers?
Yes 50.0%
No 0.0
Not applicable 50.0
Over the past five years, has the bond portfolio outperformed the outside bond index that most closely resembles it?
Yes 100.0%
Over the past five years, has it outperformed the median return for comparable outside bond managers?
Yes 88.9%
No 11.1
Over the past five years, has it outperformed the median return for your fund’s outside bond managers?
Yes 30.0%
No 10.0
Not applicable 60.0
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
