The Asian Development Bank is reviewing the asset allocation and manager list for its $620 million employee pension fund, but will probably retain its current asset mix policy, says Rosario Abad Santos, compensation and benefits officer.
The Manila-based multinational organization's retirement plan is in healthy shape. It runs a contributory defined benefit scheme, in which employees pay a fixed 9.33% of monthly salary and the ADB kicks in a variable amount on top, now around 11.00%. The ADB's contribution has been as high as 18.66% but the booming equity markets of the 1990s allowed it to relax contributions.
Currently the ADB is considering raising its own contribution level, having seen the plan's net assets shrink from over $700 million in the past two years as global stock markets plummeted.
The majority of the ADB's pension assets are invested in the United States. Although based in Manila, the ADB's expatriate staff are compensated in dollars.
In general, the ADB follows the practice of the biggest multinational organizations, such as the World Bank and the United Nations, says Roger Burston, director of compensation and benefits. "All our expatriate staff are paid in dollars and derive their benefits in dollars," he says.
Currently 70% of the plan's assets are invested in equities, with the bulk invested in America. The rest is in fixed income. The equity allocations have both active and passive components. The ADB's current fund managers are Black Rock Financial Management, Capital Guardian Trust, Fiduciary Trust International, Legg Mason Capital Management, Pacific Investment Management (Pimco), Schroder Capital Management and Waddell & Reed Asset Management.
The ADB recently contracted Chicago-based consultant Ennis-Knupp to review the plan's asset-liability matching and to recommend adjustments to the manager list. Abad Santos says the ADB is now studying Ennis-Knupp's recommendations, and hopes to make any necessary changes within the next month.
At this stage, however, she declined to comment on what some of those changes are.
The ADB has held - and will most likely continue to hold - a high exposure to equities because this made the most sense according to the last asset-liability matching study it conducted about five years ago. "It's a long-term plan so a high equities content is suitable," says Abad Santos. The plan has an annual return target of 8%.
Burston notes: "The fund is well established and it would not be appropriate to change too much. We are looking at the investment strategy and the performance of the fund managers. But in terms of looking at the plan itself or the benefits, we're not looking to change anything."
Despite the fall in assets, the plan's funding is not in danger. "Prior to September 11th [2001] we were very well funded," Abad Santos explains. "There has been an erosion since but in terms of our accrued benefit obligation, the plan is still more than 100% funded."
For now the ADB scheme does not intend to invest in alternative investments, despite its desire to boost returns. Ennis-Knupp recommended against it, reasoning that a fund needed to hit the $1 billion size to make enough of a hedge fund allocation to be worth the hassle. Moreover, the ultimate rate of return is unpredictable and requires a disciplined approach to investment, year in and year out.
