State Street Global Advisors Launches U.S. Pooled Asset Liability Matching Solution for Pension Plans; Solution Enables Plan Sp
April 10 2006 - 7:30AM
Business Wire
State Street Global Advisors (SSgA), the investment management arm
of State Street Corporation (NYSE: STT) and the largest
institutional fund manager in the world, announced today that it
has launched a U.S. version of its Pooled Asset Liability Matching
solution (PALMS), first introduced in the U.K. in January 2005.
U.S. PALMS is designed to help plan sponsors manage interest rate
and duration risk within a liability-driven investment framework.
Liability-driven investing (LDI) presents an alternative to
conventional static benchmarks by structuring an asset allocation
that better matches expected investment returns with the
liabilities of an individual pension plan. This investing style has
gained popularity in the U.K. and the Netherlands in response to
issues of pension scheme solvency and changes in pension
regulations. In the U.S., as regulatory and accounting changes
focus more attention on plan funding and its balance sheet effect,
liability management has assumed new urgency. "Making liabilities
the point of reference for measuring pension fund risk transforms
conventional assumptions about risk and return," said Alistair
Lowe, director of global asset allocation and currency at State
Street Global Advisors. "By addressing unrewarded liability risks,
including interest-rate and duration risk, through a restructuring
of the fixed-income portion of their portfolios, plan sponsors can
better manage future liabilities and work to increase funding
levels by allocating that 'risk budget' to return-generating
strategies. State Street Global Advisors' U.S. PALMS provides an
easy first step with a highly effective tool for hedging
longer-dated liabilities." U.S. PALMS uses a pooled series of
five-year swaps vehicles--primarily invested in zero coupon
swaps--reaching out over 40 years to help plans extend the duration
of their assets and manage changes in interest rates to ensure
sufficient cash flows for projected liabilities. These
easy-to-implement, flexible strategies offer a natural investment
hedge to the dynamic properties of pension liabilities while
keeping costs low and freeing plans from the need to manage
collateral and counterparty risk on their own. Moreover, plans can
choose how much liability risk they wish to remove by varying the
percentage allocation to particular maturity strategies. State
Street Global Advisors' U.S. PALMS offers institutional investors
additional benefits over liability matching solutions currently
available in the market, including transparent pricing, flexibility
to adjust investment allocations across the maturity spectrum,
fixed entry and exit spreads, and monthly valuations. By contrast,
many alternative approaches are burdened with high costs, lack of
flexibility, time-consuming processes and a level of complexity
that contributes to lack of understanding of these products by
pension fund trustees. "PALMS gives pension funds the opportunity
to match their future liabilities in a flexible, cost-efficient way
that can't be achieved using conventional bonds," said Lowe.
"Because SSgA's solution addresses many of the cumbersome
administrative and risk management issues up front, PALMS lowers
the entry barrier for many funds interested in better managing
their liability risk." The new strategy will be managed by State
Street Global Advisors' Boston-based Global Fixed Income management
team. State Street Global Advisors will provide market data on each
of the five strategies to the pension fund's consultant so they can
recommend any necessary changes in allocation weights in order to
meet liabilities. To determine liabilities, pension funds will
continue to rely on their consultants to provide actuarial advice.
About State Street Global Advisors State Street Global Advisors,
the investment management group of State Street Corporation,
delivers investment strategies and integrated solutions to clients
worldwide across every asset class, investment approach and style.
With $1.4 trillion in investment programs and portfolios (as of
December 31, 2005), State Street Global Advisors has investment
centers in Boston, Hong Kong, London, Milan, Montreal, Munich,
Paris, Singapore, Sydney, Tokyo, and Zurich, and offices in 25
cities worldwide. For more information, visit State Street Global
Advisors at www.ssga.com. This news announcement contains
forward-looking statements as defined by United States securities
laws, including statements about the financial outlook and business
environment. Those statements are based on current expectations and
involve a number of risks and uncertainties, including those
related to the pace at which State Street adds new clients or at
which existing clients use additional services, the value of global
and regional financial markets, the pace of cross-border investment
activity, changes in interest rates, the pace of worldwide economic
growth and rates of inflation, the extent of volatility in currency
markets, consolidations among clients and competitors, State
Street's business mix, the dynamics of markets State Street serves,
and State Street's success at integrating and converting
acquisitions into its business. Other important factors that could
cause actual results to differ materially from those indicated by
any forward-looking statements are set forth in State Street's 2005
annual report and subsequent SEC filings. State Street encourages
investors to read the corporation's annual report, particularly the
section on factors that may affect financial results, and its
subsequent SEC filings for additional information with respect to
any forward-looking statements and prior to making any investment
decision. The forward-looking statements contained in this press
release speak only as of the date hereof, April 10, 2006, and the
company will not undertake efforts to revise those forward-looking
statements to reflect events after this date.
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