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Commercial Mortgages: An Alternative to Long Corporate Bonds for Pension Plan De-Risking

Journal of Investing, 2016-12, Vol.25 (4), p.134-141 [Peer Reviewed Journal]

Copyright Euromoney Institutional Investor PLC Winter 2016 ;ISSN: 1068-0896 ;EISSN: 2168-8613 ;DOI: 10.3905/joi.2016.25.4.134

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  • Title:
    Commercial Mortgages: An Alternative to Long Corporate Bonds for Pension Plan De-Risking
  • Author: Liu, Xisuo Louis
  • Subjects: Cash flow ; Collateral ; Commercial real estate ; Commercial real estate loans ; Corporate bonds ; Credit risk ; Default ; Loan workouts ; Mortgage backed securities ; Mortgage companies ; Portfolio management ; Prepayments ; Refinancing ; Studies ; Treasuries ; Underwriting
  • Is Part Of: Journal of Investing, 2016-12, Vol.25 (4), p.134-141
  • Description: High-quality, long-duration commercial mortgage-backed securities (CMBS) are worth consideration by corporate defined-benefit pension plans that are shifting asset allocations from equities to fixed income for de-risking. The author's research suggests that high-quality, long-duration CMBS can be a viable alternative to long corporate bonds in a plan's fixed-income allocation, given the sector's growing market size, more stable and predictable cash flows, reasonably high correlation to long-duration corporate bonds, and relatively low default risk. An allocation to AAA-rated long CMBS can also diversify and mitigate the issuer concentration risk inherent in allocations to high-quality, long-duration corporate bonds, particularly for larger plans. For plans with allocation to equities, adding high-quality CMBS can reduce funded-ratio risk at the plan level, because these securities are less correlated than corporate bonds to equities.
  • Publisher: London: Pageant Media
  • Language: English
  • Identifier: ISSN: 1068-0896
    EISSN: 2168-8613
    DOI: 10.3905/joi.2016.25.4.134
  • Source: ProQuest Central
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