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Corporate Pension Plan Above $5 BillionUnited TechnologiesHartford, Connecticut

Innovation comes in bunches—or at least it seems that way when looking at United Technologies' (UTC) $43 billion defined-benefit pension plan, run by CIO Robin Diamonte and a slender staff of five.

Let's start with liability-driven investing (LDI), which is no longer truly innovative but at one time was cutting edge. In 2005 it certainly still was, and that is the year UTC made a move long before many of its peers. "We took a strategic focus on de-risking, but a tactical approach to creating the hedge portfolio," Diamonte points out. The percent of interest-rate risk hedged has grown from 6% in that year to 45% now and, since inception, the LDI portfolio has outperformed the liability by 50 basis points—"and has saved the plan 17%, or $4 billion, in funded status," she says. Not bad, says absolutely everyone.

The fund was also early to another pension trend: risk parity. By 2006—long before the financial crisis made it trendy to invest with the likes of Bridgewater and AQR's risk-balanced products—the fund had a 5% risk parity allocation, totaling nearly $750 million. In 2010, this was bumped up to 8% with three managers. Now, UTC has nearly $2 billion in the strategy. Add in a portable alpha strategy that allowed the fund to avoid lowering its return-on-asset assumption, and you have a whole lot of innovation up in Hartford.

"I'm a real quant-head," Diamonte told aiCIO when she was named as the top corporate plan executive on the Power 100. "[Risk parity], for example, just makes a lot of sense to me." Surprisingly, since board education is often cited as an inhibitor to risk parity investment, "my original recommendation was for 3%," she says. "The pension committee asked me if I was positive, if I was committed—and when I said yes, they said 'why not make a real dent and allocate more?'"

Industry watchers will likely hope that other large corporate plans will follow suit—which isn't that far-fetched, considering Diamonte, in October, was named the Chairwoman of the Committee on Investment of Employee Benefit Assets (CIEBA), the dominant industry group for American corporate plans. "One of the main goals [of the group] is educating Congress on what's important," she said at the time. Let's just hope that education extends to her peers as well. —KPM

SEE DATA
"The pension committee asked me if I was positive (about risk parity), if I was committed-and when I said yes, they said 'why not make a real dent and allocate more?'"Robin Diamonte, CIO
CORPORATE PENSION PLAN ABOVE $5 BILLION NOMINEES2011 Winner: Boeing
  • General Motors (Runner-up)
  • BP
  • BT
  • CenturyLink
  • ExxonMobil
  • UPS