Seeking to reduce risk and volatility in the company's
defined contribution plans, officials at JM Family Enterprises Inc. have been
adding alternative investments ranging from commodities and hedge funds of
funds to global tactical asset allocation and direct real estate. Plus, the
company's $296 million defined benefit plan has 33% of its assets in
alternative investments, including hedge funds of funds, commodities, core real
estate, opportunistic real estate and GTAA. Most of the alternatives have been
added to the DC and DB plans since 2010.
The DB plan's allocation to alternatives closely matches the
$528 million profit-sharing plan's target of 34% in alternative investments. The
$216 million 401(k) plan gives participants a choice among three
asset-allocation options with alternatives' target exposures ranging from 25%
to 30%.
Most defined contribution plans don't use alternatives, and
such investments are not common for defined benefit plans the size of JM's. Also,
the percentage allocations in both the DC and DB plans are unusually high.
Alternatives options
The $216 million participant-directed 401(k) plan uses
alternatives such as GTAA, real assets/commodities and direct real estate in
its three multimanager asset-allocation investment options:
- The conservative option has a target of 25%
alternatives, 30% bonds, 25% stocks and 20% short-term investments.
- The moderate allocation has a target of 28%
alternatives, 50% stocks, 19% bonds and 3% short-term investments. This option
is the plan's qualified default investment alternative.
- The aggressive allocation has a target of 30%
alternatives, 65% stocks and 5% bonds.
JM doesn't offer a target-date fund series, which is the
QDIA for many companies. The other options in the 401(k) plan are five
single-manager stock mutual funds, two single-manager GTAA mutual funds, two
single-manager bond mutual funds and a stable value fund.
The $528 million profit-sharing plan is employer directed.
Described by company officials as a “custom strategy fund,” it has a target
allocation of 34% alternatives, 46% stocks. 17.5% bonds, and 2.5% short-term
investments. The alternatives are global TAA, commodities, direct real estate
and hedge funds of funds.
Direct real estate
For the 401(k) plan, Ronald Virtue, director of investments
for JM, added direct real estate in 2012; commodities in 2011; and global TAA
in 2010. The various components are contained within three mutual funds and a
collective trust to ensure daily valuation. For example, the 30% alternatives
target in the aggressive allocation option consists of 5% in the PIMCO
Commodity Real Return Strategy Institutional Fund; 10% in the PIMCO All Asset
Fund Institutional Class; 10% in the BlackRock Global Asset
Allocation Fund institutional class; and 5% in the JPMCB Diversified Commercial
Property Fund., the only collective trust in the group. For the moderate
allocation option, the alternatives and percentages are the same as the
aggressive option, except for a 3% target for PIMCO's commodity fund. The
commodity fund isn't part of the conservative option.
Although JM doesn't provide a corporate match, it does
contribute 3% a year in pay to eligible employees regardless of their 401(k)
contribution. Employees are eligible immediately. For the profit-sharing plan,
the most recent change to its alternatives portfolio was the December 2013
addition of more GTAA managers. The plan had added hedge funds of funds in 2012
and direct real estate and commodities in 2011.
JM makes a contribution to the profit-sharing plan that
varies based on employees' tenure. The contributions increase incrementally
over three years to a goal of 12% of pay, subject to the company's
profitability. In the defined benefit plan, core real estate was added last
year, and GTAA and opportunistic real estate were expanded. About 80% of the
investment managers for the DB plan also manage money for the profit-sharing
plan.
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