Equifax 2010 Annual Report Download - page 66

The following table shows a reconciliation of the beginning and
ending balances for assets valued using significant unobservable
inputs:
(In millions) Private Equity Hedge Funds Real Assets
Balance at December 31, 2009 $27.1 $ 63.5 $3.7
Return on plan assets:
Unrealized 1.6 4.7 —
Realized 0.1 2.4 0.4
Purchases 6.8 50.7 3.9
Sales (3.8) (28.1) —
Level 3 transfers, net — — —
Balance at December 31, 2010 $31.8 $ 93.2 $8.0
The fair value of the postretirement assets at December 31, 2010, is
as follows:
Fair Value Measurements at Reporting
Date Using:
Description
Fair Value at
December 31,
2010
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In millions)
Large-Cap Equity
(1)
$ 3.1 $ 3.1 $— $ —
Small and Mid-Cap Equity
(1)
1.0 1.0 — —
International Equity
(1)
2.6 2.6 — —
Fixed Income
(1)
6.2 6.2 — —
Private Equity
(2)
1.2 — — 1.2
Hedge Funds
(3)
3.4 — — 3.4
Real Assets
(1)(4)
1.2 0.9 — 0.3
Cash
(1)
0.2 0.2 — —
Total $18.9 $14.0 $— $4.9
(1) Fair value is based on observable market prices for the assets.
(2) Private equity investments are initially valued at cost. Fund managers
periodically review the valuations utilizing subsequent company- specific
transactions or deterioration in the company’s financial performance to
determine if fair value adjustments are necessary. Private equity
investments are typically viewed as long term, less liquid investments
with return of capital coming via cash distributions from the sale of
underlying fund assets. The Plan intends to hold these investments
through each fund’s normal life cycle and wind down period.
(3) Fair value is reported by the fund manager based on observable market
prices for actively traded assets within the funds, as well as financial
models, comparable financial transactions or other factors relevant to
the specific asset for assets with no observable market.
(4) For the portion of this asset class categorized as Level 3, fair value is
reported by the fund manager based on a combination of the following
valuation approaches: current replacement cost less deterioration and
obsolescence, a discounted cash flow model of income streams and
comparable market sales.
Gross realized and unrealized gains and losses, purchases and sales
for Level 3 postretirement assets were not material for the twelve
months ended December 31, 2010.
USRIP, or the Plan, Investment and Asset Allocation Strategies.
The primary goal of the asset allocation strategy of the Plan is to
produce a total investment return which will satisfy future annual
cash benefit payments to participants and minimize future contribu-
tions from the Company. Additionally, this strategy will diversify the
plan assets to minimize nonsystemic risk and provide reasonable
assurance that no single security or class of security will have a
disproportionate impact on the Plan. Investment managers are
required to abide by the provisions of ERISA. Standards of
performance for each manager include an expected return versus
an assigned benchmark, a measure of volatility, and a time period
of evaluation.
The asset allocation strategy is determined by our external advisor
forecasting investment returns by asset class and providing alloca-
tion guidelines to maximize returns while minimizing the volatility
and correlation of those returns. Investment recommendations are
made by our external advisor, working in conjunction with our
in-house Investment Officer. The asset allocation and ranges are
approved by in-house Plan Administrators, who are Named
Fiduciaries under ERISA.
The Plan, in an effort to meet asset allocation objectives, utilizes a
variety of asset classes which has historically produced returns which
are relatively uncorrelated to those of the S&P 500 in most environ-
ments. Asset classes included in this category are alternative assets
(hedge fund-of-funds), private equity (including secondary private
equity) and real assets (real estate and funds of hard asset securities).
The primary benefits of using these types of asset classes are:
(1) their non-correlated returns reduce the overall volatility of the
Plan’s portfolio of assets, and (2) their ability to produce superior risk-
adjusted returns. This has allowed the Plan’s average annual
investment return to exceed the S&P 500 index return over the last
ten years. Additionally, the Plan allows certain of their managers,
subject to specific risk constraints, to utilize derivative instruments, in
order to enhance asset return, reduce volatility or both. Derivatives
are primarily employed by the Plans in their fixed income portfolios
and in the hedge fund-of-funds area. Derivatives can be used for
hedging purposes to reduce risk. During 2007, the Equifax Master
Trust entered into certain allowed derivative arrangements in order to
minimize potential losses in the Plan’s assets. These agreements
were settled in 2008 resulting in payments received of $13.2 million in
the USRIP and $6.6 million in the EIPP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
EQUIFAX 2010 ANNUAL REPORT
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