Pension Plans, Financial Institutions Unlikely to Achieve Return Targets,
According to BNY Mellon Investment Strategy and Solution Group
10-Year Capital Market Return Assumptions Report Highlights Challenges
NEW YORK and LONDON, Feb. 6, 2013
NEW YORK and LONDON, Feb. 6, 2013 /PRNewswire/ -- Pension plans and other
institutions are not expected to achieve their target returns of seven to
eight percent over the next 10 years, according to the 10-Year Capital Market
Return Assumptions report released this week by the BNY Mellon Investment
Strategy and Solutions Group (ISSG) and BNY Mellon Wealth Management.
"Based on our research and analysis, we are projecting extremely low fixed
income returns and single-digit equities returns over the period, which will
make it challenging for institutions to reach their target returns," said
Jeffrey Saef, managing director for BNY Mellon and head of ISSG. "If
institutions remain intent on aiming for combined eight percent returns, they
may need to seriously consider taking on more risk in their portfolios."
ISSG analysis derives an expected return of seven percent for US large cap
stocks and similar risk-adjusted returns for US small and midcap stocks
annually over the 10-year period. These returns are propelled by real earnings
growth of two percent per year, a dividend yield of 2.25 percent and developed
market inflation of 2.5 percent. ISSG noted that the two percent earnings
growth projection is significantly below the near-term consensus of six
In fixed income, ISSG sees real cash rates rising to approximately one percent
annually in the US in 10 years. ISSG said with inflation at 2.5 percent, it
expects the 10-year Treasury yield to be 3.5 percent, causing long-term
Treasuries to provide a negative return over the 10-year period.
Expected returns for alternatives depend heavily on the underlying asset
class, with a range of three to over 11 percent for the category, ISSG said.
The report notes that interest rate increases could adversely affect returns
of fixed income assets held by pension plan sponsors, many of which are
underfunded. However, these same interest rate increases would also reduce
plan liabilities, which might result in a net increase in funding levels.
ISSG said that concerned plan sponsors need to consider whether they need to
add exposure to equities. In addition, they could consider shortening the
duration of their fixed income holdings, the report said.
"High net worth individuals, foundations and endowments aiming to preserve
purchasing power also should consider revisiting their fixed income allocation
over the 10-year period," said Leo Grohowski, chief investment officer for BNY
Mellon Wealth Management.
For a copy of the report, please contact Mike Dunn at
Note: Expected rates and returns are ISSG estimates based on historical
performance and the current market environment. The capital market assumptions
are not actual or guaranteed future performance. They do not represent, and
are not necessarily indicative of, the results that may be achieved in the
future; actual returns may vary significantly.
Notes to Editors:
The BNY Mellon Investment Strategy and Solutions Group is a division of The
Bank of New York Mellon. In Asia, Europe, the Middle East and Africa, the
ISSG offers products and services, including investment strategies that are
developed by affiliated BNY Mellon Investment Management investment advisory
firms, to clients through BNY Mellon Asset Management International Limited.
In the US, ISSG is part of The Bank of New York Mellon.
BNY Mellon Investment Management is one of the world's leading investment
management organizations and one of the top U.S. wealth managers, with $1.4
trillion in assets under management. It encompasses BNY Mellon's affiliated
investment management firms, wealth management services and global
distribution companies. More information can be found at www.bnymellon.com.
BNY Mellon is a global investments company dedicated to helping its clients
manage and service their financial assets throughout the investment lifecycle.
Whether providing financial services for institutions, corporations or
individual investors, BNY Mellon delivers informed investment management and
investment services in 36 countries and more than 100 markets. As of December
31, 2012, BNY Mellon had $26.7 trillion in assets under custody and
administration, and $1.4 trillion in assets under management. Whether clients
are looking to create trade, hold, manage, service, distribute or restructure
investments, BNY Mellon can act as a single point of contact for their
investment needs. BNY Mellon is the corporate brand of The Bank of New York
Mellon Corporation (NYSE: BK). Additional information is available on
www.bnymellon.com, or follow us on Twitter @BNYMellon.
All information source BNY Mellon as of December 31, 2012. This press release
is qualified for issuance in the UK and US and is for information purposes
only. It does not constitute an offer or solicitation of securities or
investment services or an endorsement thereof in any jurisdiction or in any
circumstance in which such offer or solicitation is unlawful or not
authorized. This press release is issued by BNY Mellon Investment Management
(US) and BNY Mellon Asset Management International Limited (ex-US) to members
of the financial press and media and the information contained herein should
not be construed as investment advice. Past performance is not a guide to
future performance. The value of investments and the income from them is not
guaranteed and can fall as well as rise due to stock market and currency
movements. When you sell your investment you may get back less than you
originally invested. Registered office of BNY Mellon Asset Management
International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London,
EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the
Financial Services Authority. A BNY Mellon Company.
SOURCE BNY Mellon
Contact: Mike Dunn, +1-212-922-7859, firstname.lastname@example.org, or Sarah
Deutscher, +44 20 763 2744, email@example.com
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