GERMANY - German multinational companies have been using hedging strategies, liability-driven investment (LDI) and alternatives increasingly, but are still reducing equities, according to a survey by Towers Watson.
The survey found the number of companies using inflation hedging - employing long duration or inflation-linked bonds, as well as interest rate swaps - surged from 8% last year to 31% this year.
The share of companies using currency hedging increased from 25% to 38% over the same period.
Towers Watson said 74% of respondents were adjusting their asset allocation to their liabilities to better manage net volatility between assets and liabilities - something three-quarters of surveyed companies saw as a 'major risk' for balance sheets.
According to the consultancy, many companies have continued to cut their equity exposure in their German pension plans - down from 22% last year to 16% in 2010 - due to changes in risk assessment.
German companies were also "relatively conservative" in their international plans, with a 27% equities share, Towers Watson said.
Some of the freed up capital went into alternatives, with this exposure doubling to 6% on average and 40% of the multinationals already having an alternatives quota of more than 10%.
Nigel Cresswell, head of investment consulting at Towers Watson, said the increased use of active management was "remarkable", especially in the corporate bond sector.
For its second Pension Risk Management Survey of German multinational companies,Towers Watson surveyed companies with combined plan assets of €70bn, nearly half of all plan assets in the DAX stock market index.