Defined benefit plans in the United States are increasingly turning to alternative investments, as well as outsourcing, as they pursue better returns as well as better portfolio diversification.

That’s according to a report from Boston-based marketing firm Cerulli Associates, which said that many defined benefit plans are seeking the support of an outsourced chief investment officer to help with dynamic asset allocation decisions.

With the need to turn to different strategies than the more-or-less traditional 60 percent stocks and 40 percent bonds to achieve target returns, pension plans are not only actively derisking but seeking ways to protect themselves as the need for returns actually pushes them toward riskier investments.

Trying to deal with those goals in a landscape fraught with new challenges, including regulatory change and underfunded plans, is therefore causing institutions to look outside for expertise in investing; increasingly, they’re turning to outsourced chief investment officers for support.

“The vast majority of providers surveyed are outsourcing because they lack the depth of internal resources and expertise to cover and manage assets across the spectrum, including alternatives and global assets,” Michele Guiditta, associate director at Cerulli, said in the report.

Guiditta continued, “Nearly 32 percent of asset managers polled have an alternative investment mandate for a corporate DB plan that is currently adhering to a derisking strategy. These plans are looking to better diversify their portfolios and enhance returns. Several public pension plans looking to narrow their funding gaps are increasing their holdings in risky assets, and may need guidance with building an alternative assets portfolio.”

Asset allocation strategies that are becoming increasingly complex are resulting in greater use of alternatives — more by corporate defined benefit plans than by public ones, since their incentives are different. Still, alternative asset managers view public defined benefit plans as presenting some of the best opportunities.

But asset managers supporting corporate defined benefit plans on a derisking glidepath during 2016 are putting greater emphasis on alternatives, with 57 percent using hedge funds and/or low-volatility absolute return (low beta hedge funds). Thirty-six percent are turning to real estate, while 29 percent use infrastructure and 14 percent use private equity.

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