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News & Policy

PBGC Selects Fixed Income Portfolio Managers

January 31, 2005

WASHINGTON- The Pension Benefit Guaranty Corporation (PBGC) has selected three investment management firms to manage $7.5 billion in fixed income investments for the agency: Prudential Investment Management LLC, Wellington Management Co. and Western Asset Management Co.

"These firms will implement PBGC's new investment strategy, which focuses on sound risk management through better matching of assets and liabilities," said PBGC Executive Director Bradley D. Belt.

Each firm will carry out an actively managed fixed income strategy with a primary objective of constructing a portfolio whose volatility tracks the volatility of PBGC's liabilities. The secondary objective is to earn excess returns over PBGC's liability discount rate.

With these selections, PBGC now employs 10 asset management firms. The firms assist the agency in pursuing its investment policy objectives to: ensure that funds are available to fulfill PBGC's pension payment obligations; limit the financial risk exposure arising from a mismatch of assets against liabilities; and seek to earn a competitive rate of return consistent with appropriate levels of risk.

PBGC assets, totaling about $40 billion at the end of fiscal year 2004, are divided between a revolving fund for premium revenue, which is invested in Treasury bonds, and a trust fund for assets acquired from failed pension plans. Short-term cash holdings in the revolving fund are managed internally by the PBGC, with all other discretionary investments managed by professional money management firms. These managers are selected by the PBGC on the basis of their demonstrated performance, expertise and expense.

The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 31,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.

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PBGC No. 05-20