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Generating funded-ratio growth through return-seeking portfolios
As corporate DB plan sponsors have gradually settled on strategies for their liability-hedging allocations and glidepaths in recent years, many we’ve spoken with have turned their attention to their return-seeking allocations — and, in particular, how best to structure them to generate funded-ratio growth. Our framework for return-seeking portfolio construction can help plan sponsors think though this decision.
As highlighted in this video, the framework emphasizes funded-ratio growth via a more stable path of returns, and in an upcoming paper, we’ll provide more about the two core tenets of our approach:
- Equities can be a powerful source of funded-ratio growth in some environments but can be less reliable in others.
- Mitigating funded-ratio drawdowns is key to funded-ratio success due to the power of compounding (shallower drawdowns allow assets to recover more quickly).