Coca Cola 2013 Annual Report Download - page 112

Investment Strategy for U.S. Pension Plans
The Company utilizes the services of investment managers to actively manage the pension assets of our U.S. plans. We have
established asset allocation targets and investment guidelines with each investment manager. Our asset allocation targets promote
optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the plan.
Selection of the targeted asset allocation for U.S. plan assets was based upon a review of the expected return and risk
characteristics of each asset class, as well as the correlation of returns among asset classes. During 2012, the Company revised the
asset allocation targets and restructured the investment manager composition to further diversify investment risk and reduce
volatility while maintaining long-term return objectives. Our revised target allocation is a mix of 42 percent equity investments,
30 percent fixed-income investments and 28 percent alternative investments. We believe this target allocation will enable us to
achieve the following long-term investment objectives:
(1) optimize the long-term return on plan assets at an acceptable level of risk;
(2) maintain a broad diversification across asset classes and among investment managers; and
(3) maintain careful control of the risk level within each asset class.
The guidelines that have been established with each investment manager provide parameters within which the investment
managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements and
credit quality standards, where applicable. Unless exceptions have been approved, investment managers are prohibited from
buying or selling commodities, futures or option contracts, as well as from short selling of securities. Additionally, investment
managers agree to obtain written approval for deviations from stated investment style or guidelines. As of December 31, 2013, no
investment manager was responsible for more than 10 percent of total U.S. plan assets.
Our target allocation of 42 percent equity investments is composed of 60 percent global equities, 16 percent emerging market
equities and 24 percent domestic small- and mid-cap equities. Optimal returns through our investments in global equities are
achieved through security selection as well as country and sector diversification. Investments in the common stock of our Company
accounted for approximately 5 percent of our global equities allocation and approximately 2 percent of total U.S. plan assets. Our
investments in global equities are intended to provide diversified exposure to both U.S. and non-U.S. equity markets. Our
investments in both emerging market equities and domestic small- and mid-cap equities are expected to experience larger swings
in their market value on a periodic basis. Our investments in these asset classes are selected based on capital appreciation
potential.
Our target allocation of 30 percent fixed-income investments is composed of 33 percent long-duration bonds and 67 percent with
multi-strategy alternative credit managers. Long-duration bonds provide a stable rate of return through investments in high-quality
publicly traded debt securities. Our investments in long-duration bonds are diversified in order to mitigate duration and credit
exposure. Multi-strategy alternative credit managers invest in a combination of high-yield bonds, bank loans, structured credit and
emerging market debt. These investments are in lower-rated and non-rated debt securities, which generally produce higher returns
compared to long-duration bonds and also help to diversify our overall fixed-income portfolio.
In addition to equity investments and fixed-income investments, we have a target allocation of 28 percent in alternative
investments. These alternative investments include hedge funds, reinsurance, private equity limited partnerships, leveraged buyout
funds, international venture capital partnerships and real estate. The objective of investing in alternative investments is to provide
a higher rate of return than that available from publicly traded equity securities. These investments are inherently illiquid and
require a long-term perspective in evaluating investment performance.
Investment Strategy for Non-U.S. Pension Plans
As of December 31, 2013, the long-term target allocation for 41 percent of our international subsidiaries’ plan assets, primarily
certain of our European plans, is 62 percent equity securities and 38 percent fixed-income securities. The actual allocation for the
remaining 59 percent of the Company’s international subsidiaries’ plan assets consisted of 31 percent mutual, pooled and
commingled funds; 21 percent equity securities; 7 percent fixed-income securities; and 41 percent other investments. The
investment strategies of our international subsidiaries differ greatly, and in some instances are influenced by local law. None of
our pension plans outside the United States is individually significant for separate disclosure.
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