The SMC pension plan has been able to fund the annual pension payments without any corporate contributions for a number of years. The committee is interested in potential changes to the asset mix that could increase the probability of achieving the long-term investment target return of 5.5% while maintaining the funded status of the plan. Park notes that fixed-income yields are expected to remain low for the foreseeable future. Kroll asks:
Statement 2If the public equity allocation remains at 60%, is there a single asset class that could be used for the balance of the portfolio to achieve the greatest probability of maintaining the pension funding status over a long time horizon? Under this hypothetical scenario, the balance of the portfolio can be allocated to either bonds, hedge funds, or private equities.
Q. In answering the question raised in Statement 2, Park would most likely recommend:
- bonds.
- hedge funds.
- private equities.
Solution
C is correct. When projecting expected returns, the order of returns from highest to lowest is typically regarded as private equities, hedge funds, bonds. Therefore, the probability of achieving the highest portfolio return while maintaining the funded status of the plan would require the use of private equities in conjunction with public equities. In addition, private equities have a high/strong potential to fulfill the role of capital growth. Fixed-income investments are expected to have a high/strong potential to fulfill the role of safety.
老师，如果仅从答案解析里的思路来看，收益从高到底排列，选PE我是理解的。但是强化串讲的讲义（23页）提到，PE provide limited diversification benefit to an equity portfolio。我理解养老金账户既然要maintain funded status，也需要投资风险不能太高，在持有60%股票的情况下，另外的投资产品要能对股票进行一定的分散化，所以我选了Hedge Fund。请问老师，我的思路错误在哪里呢？谢谢。
