401(k) Consultants Support Alternative Investments in Custom Strategies

Vast Majority Say Diversification Key in Protecting Savings in Volatile Investing Environment

NEWPORT BEACH, CA--(Marketwired - Apr 14, 2014) - The majority of investment consultants support the addition of diversifying assets in 401(k) retirement portfolios particularly as a way to mitigate risk in a volatile investment environment, according to the 8th Annual PIMCO Defined Contribution Consulting Support and Trends Survey released today by PIMCO, a leading global investment management firm and retirement solutions provider.

Of the 49 consulting firms PIMCO surveyed, nearly all (98%) said they support or strongly support the use of alternative investments in custom target-date and target-risk strategies. Consultants define alternatives as asset classes that fall outside traditional stock and bond categories such as hedge funds, private equity, long/short equity funds, private real estate, absolute return and others. Custom target-date and target-risk strategies are asset allocation investments tailored to adhere to plan sponsor defined retirement time lines or risk appetites. 

Notably, the vast majority believe daily valuation (88%) and daily liquidity (86%) in alternatives are important, which may drive more immediate interest in "liquid alternatives" or alternative strategies that also maintain daily liquidity. Consultants noted volatility reduction (93%), return enhancement (79%) and inflation protection (76%) as the most important benefits that these strategies may deliver.

To mitigate risk and help protect participant assets, the vast majority of consultants also underscore the importance of adding both diversifying fixed income strategies (94%) and inflation-protection securities (84%). Commodities, TIPS and REITS topped the list as the most important inflation-fighting assets. Most consultants believe it is important to actively manage these diversifying asset classes. As for the outlook over the next three to five years, more than two-thirds of those surveyed said they are concerned that rising interest rates, low returns and high volatility could act as investment headwinds for DC participants. Over half also noted concern with the risk of a sudden market drop and inflation. 

"Institutionalization of DC plans is continuing, with consultants moving more plans to custom strategies and adding diversifying assets -- not only fixed income and real assets but also other alternatives to equity risk," said Stacy Schaus, executive vice president and PIMCO's defined contribution practice leader. "Including these diversifying strategies should help individual investors better navigate rough waters ahead and speed their journey to reaching retirement security."

Consultants also continued to anticipate large plans (i.e., over $200 million AUM) to decouple investment default options (e.g., target dates) from administrative service providers' products. They anticipate the largest plans (i.e., over $500 million in AUM) to select custom target-date strategies, while plans between $200 and $500 million in AUM may select a hybrid, custom or single manager approach. Among other findings, the survey found that the target date glide path structure is the most important factor for plan sponsors to evaluate when selecting a target-date strategy. 

About the Survey
PIMCO's DC Practice prepares the 2014 Defined Contribution Consulting Support and Trends Survey to help plan sponsors understand the breadth of views and specific consulting services available within the DC marketplace. Our 2014 survey captures data, trends and opinions from 49 consulting firms across the U.S., which serve over 7,800 clients with aggregate DC assets in excess of $2.8 trillion. For survey highlights or other PIMCO DC publications, please contact us at 888.845.5012 or email us at pimcodcpractice@pimco.com 

PIMCO is a leading global investment management firm, with offices in 12 countries throughout North America, Europe and Asia. Founded in 1971, PIMCO offers a wide range of innovative solutions to help millions of investors worldwide meet their needs. Our goal is to provide attractive returns while maintaining a strong culture of risk management and long-term discipline. PIMCO is owned by Allianz S.E., a leading global diversified financial services provider.

Except for the historical information and discussions contained herein, statements contained in this news release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the performance of financial markets, the investment performance of PIMCO's sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions and government regulations, including changes in tax laws. Readers should carefully consider such factors. Further, such forward-looking statements speak only on the date at which such statements are made. PIMCO undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Contact Information:

Agnes Crane
PIMCO - Media Relations