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Corporate Pension Quarterly 4Q 2022

January 25, 2023  |  10 Minute Read

Quarterly Snapshot


The past year featured geopolitical uncertainty, peak inflation, aggressive interest rate hikes, and severe drawdowns across markets. Meanwhile, US corporate pension plans ended the year in their strongest position since the 2008 Global Financial Crisis.


Historical Aggregate S&P 500 Funded Status1


Source: Goldman Sachs Asset Management. As of December 31, 2022. Funded status reflects monthly estimates, with the exception of year-end data.


  • In 4Q, the Moody’s Aa corporate bond yield, a rate often referenced as a proxy for pension discount rates, fell by 15 bps, thereby increasing the value of aggregate pension liabilities by an estimated 1.5%.
  • Meanwhile, market performance improved in 4Q, bolstered by a recovery in equities. We estimate that, in aggregate, pension asset returns were 6.0%.
  • Quarter-over-quarter, asset returns were greater than liability changes, resulting in our estimate of the funded status for the aggregate S&P 500 plan rising from 96% on September 30th to 100% on December 31st.


Distribution of Funded Status


Source: Goldman Sachs Asset Management. As of December 31, 2022. E = Estimated by Goldman Sachs Asset Management. *1 year GS Asset Management projected funded status range using estimates of asset/liability returns and volatility.


Portfolio Manager Perspectives


With persistent market volatility through to the beginning of 2023, institutional investors are increasingly evaluating the role of Exchange-Traded Funds (ETFs) as an efficient implementation vehicle. Brendan McCarthy and Alex von Obelitz from the GS Asset Management ETF team share their views on why and how institutional investors are incorporating ETFs in their portfolios.


Brendan McCarthy

Head of ETF Specialists & Capital Markets, Client Solutions & Capital Markets

Brendan McCarthy

Alex Von Obelitz

Head of ETF Business Strategy, Client Solutions & Capital Markets

Alex Von Obelitz

What have been some of the drivers of increased institutional investor interest in ETFs?

It’s interesting to note that each crisis since 2008 seems to have resulted in an increase in ETF usage, and 2020 & 2022 were no different. When uncertainty is high, liquidity and transparency—two well-known attributes of ETFs—are more valued than ever, often prompting investment teams to initiate or increase ETF usage.


Aside from market conditions, the maturity of the ETF industry has also played a key role. No longer the new kid on the block, the ETF vehicle has been battle-tested in a variety of environments. With roughly $6Tn in assets and over 3,000 different listings in the US alone2, a vast array of choices—from thematic strategies to duration-specific solutions—has piqued the interest of investment teams.


Are there certain institutional investors that have been larger adopters than others?

Broadly speaking, larger public and corporate pension plans with in-house investment teams tend to be natural ETF adopters as they are already equipped to transact in securities and have well-honed processes in place. Their first ETF trade may require their trading desk or custodian having a call with an issuer’s capital markets team to iron out the details, but ETFs oftentimes quickly find a place in their investment toolkit.


For other plans using a fully or partly outsourced model, adoption tends to be slower and more localized. For instance, the desire to add a specific exposure may prompt due diligence on a corresponding ETF, either because it is the only format available or because the allocation is not large enough to warrant a separate account.


Their consultant, Outsourced Chief Investment Officer (OCIO), or manager can often accompany them through that process.


How can ETFs be an effective implementation tool in the context of strategic vs. tactical allocations?

We’ve noticed that while the catalyst for first-time use is often tactical (desire to implement an opportunistic view, interim exposure during a transition, etc.), it often leads to more strategic use cases where ETFs are another core building block. ETF usage can also blur the lines between strategic and tactical—for instance, when they help facilitate dynamic rebalancing or when they are used to apply intentional regional, sector or factor tilts. Common benefits of the ETF vehicle, which we refer to as “The Four Ts” (Transparency, Trading Ease, Tax Efficiency—although not applicable for tax-exempt pension plans—and low Total Cost) can be effective in either context.


What makes ETFs attractive in the year ahead?

As we start the new year with continued volatility, the versatility of ETFs, and in particular the liquidity, can help investors navigate market uncertainty. A popular consideration among risk managers is liquidity as both an offensive and defensive tool. Not only can liquidity present a lifeline in times of market turbulence, it also can allow investors to avail themselves of attractive purchase opportunities or to stay invested in compelling but less liquid areas. A common portfolio management use case is to construct a “liquidity sleeve” with ETFs as the building blocks. Allocating a portion of assets to this sleeve can allow for smoother equitization and management of cash. We’ve outlined several other use cases for ETFs on the next page.



Strategy in Focus: Exchange Traded Funds


Liquidity, transparency, and variety (with over 3,000 US listings1) make ETFs a versatile option for institutional investors.


Typically, an institutional investor’s first foray into ETFs is often for liquidity management and tactical exposures given the speed at which an investment can be executed. However, there are a number of other applications that can make ETFs an attractive investment vehicle, ranging from near-term implementation, such as transition management, to longer-term strategic asset allocation considerations.


Source: Goldman Sachs Asset Management. As of December 31, 2022. For discussion purposes only. 1. Source: Bloomberg. As of December 31, 2022. Please see additional disclosures at the end of this page. 



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Corporate Pension Quarterly 4Q 2022: Versatility Amid Volatility





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1 GAAP funded status estimates are based on US plans (where specified) of defined pension plans within the S&P 500 (i.e. 299 companies with pension data per GS Asset Management research). 2. Average asset-weighted return of S&P 500 companies’ US defined benefit plans. 3. Mix of MSCI EAFE and MSCI ACWI ex-US. 4. Mix of Corporates (Bloomberg Agg), High Yield (iShares), Treasuries, and Long Credit (iShares).  

2 Source: Bloomberg. As of December 31, 2022.


Equity securities are more volatile than bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies.

Bonds are subject to interest rate, price and credit risks. Prices tend to be inversely affected by changes in interest rates.

High yield fixed income securities are considered speculative, involve greater risk of default, and tend to be more volatile than investment grade fixed income securities.

Investments in foreign securities entail special risks such as currency, political, economic, and market risks. These risks are heightened in emerging markets.

An investment in real estate securities is subject to greater price volatility and the special risks associated with direct ownership of real estate.

Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

Alternative investments often are speculative, typically have higher fees than traditional investments, often include a high degree of risk and are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase volatility and risk of loss.

Alternative Investments by their nature, involve a substantial degree of risk, including the risk of total loss of an investor's capital. Fund performance can be volatile. There may be conflicts of interest between the Alternative Investment Fund and other service providers, including the investment manager and sponsor of the Alternative Investment. Similarly, interests in an Alternative Investment are highly illiquid and generally are not transferable without the consent of the sponsor, and applicable securities and tax laws will limit transfers.




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Index Benchmarks

Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices.
The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein.

Standard & Poor’s (S&P) 500 Index is Standard & Poor's Composite Stock Prices Index of 500 stocks, an unmanaged index of common stock prices.

Bloomberg US Aggregate Bond Index represents an unmanaged diversified portfolio of fixed income securities, including US Treasuries, investment grade corporate bonds, and mortgage backed and asset-backed securities.

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