Wednesday 16 January 2013

Chart of the Day - S&P 500 pension equity allocation

"Any change, even a change for the better, is always accompanied by drawbacks and discomforts." - Arnold Bennett, English novelist

Last week inflows in equities, in particular on Emerging Markets, which was the 2nd biggest equity inflows since 1992 and highest ever on Emerging Markets as indicated by the below key highlights from Bank of America Merrill Lynch:
1 – the 2nd largest weekly inflow to equities on record at $22bn 
2 – the 4th largest weekly inflow to long-only equity funds at $8.9bn
3 – the 3rd largest weekly retail buying on record
4 – the largest ever weekly inflows to EM at $7.4bn

- souce Merrill Lynch

2012 remains the most hated bull market in recent history.

The Chart of the Day is definitely the allocation to equity by pensions fund:

One can therefore wonder from the chart above what would be the impact in terms of flows should Pension fund decide to allocate more to equities given according to Bank of America Merrill Lynch note on Pension Projections published on the 16th of January, the S and P500 pension funding deficit will increase in 2013 by 429 billion dollars and Pension equity allocation declined to under 42% in S and P500 at the end of 2011, the lowest level since 2002 as per their chart above:
"The fixed income allocation increased to just over 40%, which was the highest since 2002. In our view it is prudent for pension managers to shift some of their fixed income allocation back to equities, as we are in the final inning of the three decade bull market in bonds, according to BAML credit strategist Hans Mikkelsen." - source Bank of America Merrill Lynch

So should a rebalancing occur, the impact of flows from Pension fund to equities could be as follows according to BAML's research notes:
"With the equity portion of the S&P 500’s pension assets at a 10-year low, we looked at the impact increased equity allocations would have on equity fund flows. Based on total private defined benefit assets of $2.3 trillion, we estimate a 10% increase in the equity allocation could lead to fund flows of $228 billion." - source Bank of America Merrill Lynch

"Because things are the way they are, things will not stay the way they are." - Bertolt Brecht

Stay tuned!


  1. Private equity is replacing public equity in many DB pensions. The "Chart of the Day" may not mean what you think.

    1. Hi David, this "Chart of the Day" is an illustration about an interesting chart, not necessarily what "I think". Yes, you are right, private equity is making arguably a good come back and so are LBOs. I will write up something soon on the DELL case and I will also touch on TXU's KKR 2007 deal, but also on the evolution of the PC market and the prospects for Dell.




View My Stats