August 2021: U.S. Monthly Pension Monitor

Funded status falls due to negative investment performance

August Market Summary

  • Average funded status increased by 1.5% to 97.3%: Assets returned 1.1%, while an increase in discount rates decreased liabilities by 0.4%¹.
  • U.S. equity markets posted their seventh consecutive positive month: The S&P 500 rallied another 2.9% in August and is now up 20.4% since the start of the calendar year.
  • The yield on the Bloomberg Barclays Long Credit Index increased 4 basis points (bps): Long credit spreads remained unchanged while the underlying Treasury basis increased 4 bps¹.
Market Watch Dec 2019 Dec 2020 Jul 2021 Aug 2021
Funded status 90% 90% 96% 97%
CITI discount rate2 3.01% 2.23% 2.44% 2.50%
Long Credit yield2 3.63% 2.78% 2.94% 2.98%
U.S. 30Y TSY yield 2.39% 1.64% 1.89% 1.93%
S&P 500 3,231 3,756 4,395 4,523

Spotlight: Taking advantage of intermediate duration private credit to improve yield and out earn inflation 

  • The economy has rebounded very quickly from the depth of the Covid-19 induced recession thanks to the vaccine-backed reopening and an unprecedented government stimulus. In fact, the Covid-19 recession of 2020 lasted just two months, the shortest in U.S. history.
  • Nevertheless, rates have remained low, and with the 10-year currently yielding 1.3%, investors have been looking elsewhere for additional yield.
    • The need for yield is especially glaring in the front end of the yield curve, where intermediate corporates only yield 1.3%, well below the current rate of core inflation of 4.3%.
  • In this environment, we have seen a lot of interest in investment grade private credit (IGPC) as a source of diversified alpha. While many investors are familiar with the benefits of this asset class in the long duration space, the opportunity in intermediate IGPC can be as, or in some cases more, attractive.
  • The spread curve in IGPC is relatively flat, meaning that the yield advantage of IGPC over comparable publics can often be wider on the front end of the yield curve.
    • A key driver of this phenomenon is that traditionally, the most important buyers in the IGPC market have been life insurers, and more recently, DB pension plans, who both prefer longer-dated deals to match their liabilities, resulting in lower demand / wider spreads for deals on the front end. This demand is structural, meaning that the yield advantage will likely persist until a larger buyer base is established.
  • An allocation to intermediate IGPC can be especially attractive for plans with significant fixed income allocation who want to improve curve matching while maintaining yield and diversifying credit risk or for mature plans with shorter duration profiles who have significant exposure in the two to seven year part of the curve.
  • SLC Management’s experience with our intermediate IGPC portfolio (duration approx. 4.5 years) has been a spread differential of 179 bps since the beginning of 2019 versus a comparably rated public bond portfolio.

Milliman Pension Funding Index (August Estimate) 

¹Funded Status for the month of August is estimated and subject to change as final numbers are released. Data from reference Bloomberg Barclays Indices.

²The CITI discount rate corresponds to the FTSE short pension liability index. The Long Credit yield corresponds to the BBgBarc Long Credit Index.

Investment grade credit ratings of our private placement’s portfolio are based on a proprietary, internal credit rating methodology that was developed using both externally purchased and internally developed models. This methodology is reviewed regularly. More details can be shared upon request. Although most U.S. dollar private placement investments have an external rating, for unrated deals, there is no guarantee that the same rating(s) would be assigned to portfolio asset(s) if they were independently rated by a major credit ratings organization.

The relative value over public benchmarks estimate is derived by comparing each loan’s spread at funding with a corresponding public corporate bond benchmark based on credit rating. Loans that are internally rated as “AA” are compared to the Bloomberg Barclays U.S. Corporate Aa Index, loans rated “A” are compared to the Bloomberg Barclays U.S. Corporate A Index, while loans rated “BBB” are compared to the Bloomberg Barclays U.S. Corporate Baa Index. For certain power and utility project loans, a best fit approach of a variety of Bloomberg Barclays’ indices was employed prior to September 30, 2016. After this date, these types of loans were compared to Bloomberg Barclays Utilities A Index and Bloomberg Barclays Utilities Baa Index, for “A” and “BBB” internally rated loans, respectively. Relative spread values obtained through the above methodologies were then aggregated and asset-weighted (by year) to obtain the overall spread value indicated in the paper.

About SLC Management

SLC Management is the brand name for the institutional asset management business of Sun Life Financial Inc. (“Sun Life”) under which Sun Life Capital Management (U.S.) LLC in the United States, and Sun Life Capital Management (Canada) Inc. in Canada operate.

Sun Life Capital Management (Canada) Inc. is a Canadian registered portfolio manager, investment fund manager, exempt market dealer and in Ontario, a commodity trading manager. Sun Life Capital Management (U.S.) LLC is registered with the U.S. Securities and Exchange Commission as an investment adviser and is also a Commodity Trading Advisor and Commodity Pool Operator registered with the Commodity Futures Trading Commission under the Commodity Exchange Act and Members of the National Futures Association.

BentallGreenOak, InfraRed Capital Partners (InfraRed), Crescent Capital Group (Crescent), and Advisors Asset Management are also part of SLC Management.

BentallGreenOak is a global real estate investment management advisor and a provider of real estate services. In the U.S., real estate mandates are offered by BentallGreenOak (U.S.) Limited Partnership, who is registered with the SEC as an investment adviser, or Sun Life Institutional Distributors (U.S.) LLC, an SEC registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”) . In Canada, real estate mandates are offered by BentallGreenOak (Canada) Limited Partnership, BGO Capital (Canada) Inc. or Sun Life Capital Management (Canada) Inc. BGO Capital (Canada) Inc. is a Canadian registered portfolio manager and exempt market dealer and is registered as an investment fund manager in British Columbia, Ontario and Quebec.

InfraRed Capital Partners is an international investment manager focused on infrastructure. Operating worldwide, InfraRed manages equity capital in multiple private and listed funds, primarily for institutional investors across the globe. InfraRed Capital Partners Ltd. is authorized and regulated in the UK by the Financial Conduct Authority.

Crescent Capital Group is a global alternative credit investment asset manager registered with the U.S. Securities and Exchange Commission as an investment adviser. Crescent provides private credit financing (including senior, unitranche and junior debt) to middle-market companies in the U.S. and Europe, and invests in high-yield bonds and broadly syndicated loans.

Securities will only be offered and sold in compliance with applicable securities laws.

AAM is an independent U.S. retail distribution firm that provides a range of solutions and products to financial advisors at wirehouses, registered investment advisors and independent broker-dealers.

Website content

The content of this website is intended for institutional investors only. It is not for retail use or distribution to individual investors. All investments involve risk including the possible loss of capital. All asset classes have associated risks. Certain asset classes are speculative, can include a high degree of risk and are suitable only for long-term investment. Further information available upon request. This website is for informational and educational purposes only. Past performance is not a guarantee of future results.

The information contained in this website is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained on this website. The assets under management (AUM) represent the combined AUM of Sun Life Capital Management (Canada) Inc., Sun Life Capital Management (U.S) LLC, BentallGreenOak, Crescent Capital Group, InfraRed Capital Partners, and Advisors Asset Management.

AUM as of March 31, 2025. Total firm AUM includes approximately $8B in cash, other, unfunded commitments, and Advisors Asset Management equity. Total firm AUM excludes $11 billion in assets under administration by AAM.

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SLC Management Newsroom: SLC-20221101-2566004

UK Tax Strategy - InfraRed (UK) Holdco 2020 Limited

InfraRed (UK) Holdco 2020 Ltd is the UK holding company of InfraRed Partners LLP and a subsidiary of Sun Life (U.S.) Holdco 2020 Inc, which has its headquarters in the U.S. The company was incorporated to purchase InfraRed Partners LLP and acts solely as a passive holding company. The Tax Strategy for the InfraRed Holdco Group sets out our approach to the management of InfraRed Holdco Group UK tax affairs in supporting business activities in the UK. 

This UK tax strategy is published in accordance with the requirements set out in Schedule 19 of Finance Act 2016. The strategy, which has been approved by the Board of Directors of InfraRed (UK) Holdco 2020 Ltd, is effective for the period ending 31 December 2024. It applies to InfraRed (UK) Holdco 2020 Ltd and its dormant subsidiary Sun Life (UK) Designated Member Ltd, referred to as the “InfraRed Holdco Group”. InfraRed Holdco Group.