New analysis of the country's largest private-sector pensionsshows sponsors' investment strategies are diverging like neverbefore. Russell Investments has published a new review of howpension assets are managed among the 20 sponsors inthe “$20 billion” club, a group coined by Russell in 2011 in aneffort to track trends among the largest pensions.

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Bob Collie, chief research strategist at Russell, writes thatwhile uniformity in investment strategy persists among individualretirement savers, non-profits and public pensions, the largestdefined-benefit sponsors are showing signs of more individualizedapproaches.

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Much of the new trend is explained by the divergence inreturn-seeking and liability-driven strategies, says Collie. Hecompares Ford Motor Co.'s U.S. pension plans, which have 77% oftheir assets invested in fixed income and just 7% invested inequity, with Johnson & Johnson's worldwide plans, which areinvested 79% in equities and just 21% in fixed income.

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Equity strategies are also less uniform than previouslyobserved. UPS's U.S. plan has over half of its equity allocationinvested in international holdings, while Honeywell's U.S. planholds 76% of its equity portfolio in domestic companies.

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Further difference is realized with respect to real assets andalternative investments. Dow Chemical, Northrop Grumman and Verizoneach have 10% of their portfolios invested in real estate assets,while Exxon Mobile does not have a committed real estateallocation. And Verizon has 19% of its pension portfolio investedin private equity, compared to Federal Express, which only holds 1%of assets in private equity.

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Five of the top 20 pensions show no interest in hedge funds,while 12% of UPS's assets are invested in hedge funds.

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“Investment decisions are clearly being driven by factors otherthan a desire to track the broader peer group behavior, and thathas to be a good thing,” writes Collie.

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The 20 largest pension sponsors collectively hold $914 billion in future obligations, according torecent data from Russell.

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By the end of 2015, the club's total funding deficit was $182 billion, a slight improvementover the $194 billion charted at the beginning of 2015. An increasein the average discount rate, which is used to price futureliabilities, from 4% to 4.4%, explained much of theimprovement.

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Together, club members held $732 billion in assets at the end oflast year. Investment returns for the year were a paltry $8.3billion, or 1%, well below sponsors' interest rate liability onfuture obligations.

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Last year, the $20 billion club paid $49 billion in pensionassets to beneficiaries.

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At the end of 2010, only one member had as much as 45% of assetsinvested in fixed income. By the end of 2015, six had as muchallocated to fixed income, with three sponsors—Exxon, Ford andGM—having at least 55% of their portfolios in fixed income,according to Russell's review of the companies' 10K filings withthe Securities and Exchange Commission.

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