DB Pulse // 1Q 2025 in Review
Explore our quick takes on public and corporate plans as well as insights on regulatory, legislative and market developments affecting the DB space.
AUTHOR
Jonathan W. Hubbard, CFA
Managing Director,
Strategy and Insights Group
Looming Liquidity Pinch for Public Plans
With many mature public plans at or near maximum allocations for alternative assets, liquidity risks could increase in coming years.
Consider the following example
- Plan 80% funded.
- Allocation 67% liquid/ 33% illiquid assets (e.g. private assets, real estate, etc.)
- Plan has benefit payments exceeding employer and employee contributions.
Assuming benefits paid from contributions and liquid assets, the allocation to illiquid assets will increase over time, even as plan deficit is closed.
Projected Illiquid Assets as % of Total
The end result is that illiquid assets increase as liquidity needs continue to rise in a mature plan. Effect on asset allocation could be further exacerbated in a market stress scenario.
Sponsors should have a clear game plan on how to unwind illiquid positions to align with their cash flow profiles.