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Institutional Investor: Corporate Pension Funds Sit Tight Amid Market Mayhem

March 27, 2020

NEPC's 2020 Pension Investor Flash Poll was mentioned in an Institutional Investor article.

As coronavirus concerns sent asset prices tumbling, defined benefit plan sponsors surveyed by NEPC said markets were too volatile for them to do anything.

Private-sector pension funds mostly left their portfolios alone during this month’s “extreme” market volatility, according to investment consultant NEPC.

The consulting firm polled corporate and healthcare plan sponsors during the second week of March, after stocks began plummeting in response to coronavirus concerns. The survey found that most pension funds intended to stick with their existing allocation strategies, with 52 percent reporting that the market was too volatile for them to take any action.

Thirty-one percent said they were rebalancing to maintain their allocation targets, while 7 percent reported that they were raising cash.

At the time of the survey, all respondents believed it was possible that the pandemic would lead to a recession, including 79 percent who indicated that the odds of a recession were 50 percent or higher.

This pessimism extended to the Standard & Poor’s 500 stock index, which 63 percent predicted would end the calendar year in negative territory. Fifteen percent projected double-digit losses for the index.

Even among those who believed that large-cap stocks would recover by year-end, the return expectations were modest: Nearly all respondents predicted that the S&P 500’s 2020 returns will be below 10 percent.

“The rapid spread of the new coronavirus has rattled markets and shaken corporate pensions who are trying to determine the true economic and market impacts of this pandemic,” NEPC partner Brad Smith said in a statement. “Our survey of defined benefit plan sponsors showcases a deeply negative view of the economy and stock market.”

Despite the sharp declines in asset prices, most respondents said it is unlikely that the U.S. Federal Reserve will adopt negative interest rates. Around two-thirds of surveyed pensions estimated that there was a roughly 25 percent chance that the central bank would go below zero, while 14 percent insisted that there was no chance of negative rates.

The Fed revised its interest rate benchmark to a range of 0 to 0.25 percent on March 15, two days after the NEPC survey closed.

Topics: Press, Press Coverage

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