Exotic investment strategy
In December, GM outlined a revised strategy designed to deliver at least a 9% return at its pension plans, including increased allocation to such asset classes as emerging-market debt, high-yield bonds and real estate while reducing global equity allocation to less than 50%. Some commentators feel that investing in more exotic asset classes and using hedge fund managers with the aim of reducing volatility is slightly odd. But GM treasurer Walter Borst insists that investing in additional asset classes will add to diversification and so reduce volatility on a portfolio basis. "We can do this because we have such large assets under management and expertise in house," he says. "Some people have said that by investing in some of these asset classes we must be adding risk. Well, some of the items might be more or less risky, but we like to think we're a little more sophisticated than that."
There's always the hope that the pension plan will keep performing above expectations as it did in the second half of 2003. GM has also just reduced the discount rate it uses to calculate the present value of its pension obligations by 75 points to 6%, compared with Ford's 6.25%.