GLOBAL - In an exceptionally speedy reversal of fortune, General Motors has almost hauled its US hourly and salaried pension plans back into the black.
They suffered from a deficit of $19.3bn at the beginning of 2003. Pending the completion of the sale of GM’s Hughes Electronics Corporation, GM’s total contributions to its US pension plans in 2003 will hit $18.5bn.
This includes $13.5bn raised through a GM debt issue in June 2003 and a contribution of GM class H stock to the value of $900m.
But just as GM pension plan investments posted stellar returns of 18% for the year to November 2003, GM is shifting its investment strategy up a gear, with a focus on high alpha, low volatility products.
In the pipeline are increased allocations to asset classes such as emerging market debt and equities, private equity and real estate to further enhance the diversification of its pension portfolio.
The proposed changes also involve reducing allocations to US and and global equities. “The overriding goal was a consistent rate of return over time of around 9% a year, with lower volatility,” said GM spokesman Jerry Dubrowski.
“We looked at how can we achieve that and we decided the way we could achieve it would be by investing in non-traditional asset classes where we already have the expertise, and they are not necessarily correlated to the broader stock and bond market, because that is where most of the volatility seems to reside.”
“GM has moved aggressively to address its pension funding deficit in 2003,” said GM vice chairman and CEO John Devine. “These actions provide GM with significantly improved financial flexibility going forward to continue to execute our business strategy.”
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