Greenwich Associates Says That US Pension Funds Expect Investment Returns To Reduce

US pension funds are projecting sharply reduced investment returns from major asset classes through 2013, according to new research from Greenwich Associates. Every year, Greenwich Associates asks more than 1,000 U.S. institutions to disclose the annual rates of return they

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US pension funds are projecting sharply reduced investment returns from major asset classes through 2013, according to new research from Greenwich Associates.

Every year, Greenwich Associates asks more than 1,000 U.S. institutions to disclose the annual rates of return they are expecting on individual asset classes for the next five years. Overall, corporate pension funds interviewed from July to October 2008 said they had reduced investment returns on plan assets to an annual 7.4% in 2008 from 8.2% in 2007 and public funds cut overall portfolio return expectations to 7.6% from 8.5%.

“U.S. pension funds are not expecting a quick recovery in investment markets,” says William Wechsler, Greenwich Associates consultant. “To the contrary, they are planning for a slow-growth environment for asset valuations that they expect to continue for the next five years.”

Pension funds have dramatically reduced return expectations for U.S. equities, with projections for annual rates of return dropping to 7.8% in 2008 from 8.6% in 2007 among corporate plans and to 7.9% from 9.1% among public plans. Both groups also cut return expectations on fixed income, with public plans reducing annual expectations to 5.0% from 5.8% and corporate plans reducing expected returns to 5.2% from 5.6%. Pension funds also reported substantial reductions in expected returns on international equity, equity real estate, private equity and hedge funds.

Both groups expected private equity to generate the highest returns of any asset class over the next five years, with public funds projecting an annual 11.3% return from their private equity investments and corporate funds expecting 10.1%. “It is important to remember the extent to which markets have deteriorated since these interviews were completed in September,” says Greenwich Associates consultant Dev Clifford. “If anything, these expectations for private equity and other asset classes might prove overly optimistic.”

For more information please visit www.greenwich.com.

D.C.

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