Market Movements

Pension Risk Transfer Activity Soars As More Plan Sponsors Seek To Derisk

Strategic asset managers poised to gain corporate DB assets amid inflation, rising interest rates

A new report from Cerulli Associates uncovers key trends impacting the institutional marketplace, which includes private and public pensions (DB and DC), endowments, foundations, insurance general accounts, and subadvisory. Access the full report here.

May 8, 2024, BOSTON—The pension risk transfer (PRT) market has expanded significantly over the past decade, hitting record-high volume in 2023. A combination of regulatory changes, rising interest rates, and improved funding statuses are allowing defined benefit (DB) plans to derisk and pursue PRT transactions, according to the latest Cerulli Edge—U.S. Institutional Edition.

The high-interest-rate environment has been a boon to corporate DB plans’ funded statuses. Many plans now are well funded, leading plan sponsors to re-evaluate their managers and re-allocate to risk-averse assets. According to research conducted in 2Q 2023, more than two-thirds of plan sponsors (69%) tell Cerulli they are at least somewhat likely to derisk over the next 24 months.

Of the four main strategies used for a PRT—lump-sum payments, annuity buyouts, buy-ins, and longevity swaps—43% of plan sponsors say they would use a combination of lump-sum payments and annuity buyouts in the case of plan termination. One-quarter of participants say they would use lump-sum payments exclusively, and one-third would use only annuity buyouts.

“Asset managers that can assist with derisking efforts, including providing advice on glidepaths, are well positioned to capture corporate DB assets,” says Agnes Ugoji, analyst. “Managers with an asset-liability management strategy can support the shifting priorities for plan sponsors’ funded status gains, ensuring they reach their goals.”

However, as interest rates remain steady or potentially decrease, Cerulli expects pensions will struggle to maintain highly funded statuses. “High-yield managers and alternative managers will be adequately equipped to support these clients,” says Ugoji. “As corporate DB plans represent a diminishing opportunity, asset managers should look toward other institutional channels, particularly insurance general accounts and endowment and foundation clients.”




About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston, Cerulli Associates is an international research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.