Jonnathan Wong-Coronel’s Post

Money on the move… An interesting article in The Wall Street Journal exploring how pension funds are reallocating funds from equities to bonds and alternatives. While some of these reallocations be attributed to market timing/valuations another big driver here is likely the risk capacity of the pensions funds themselves. Fore example, the funded status of many of these plans have increased dramatically given the rise and yields and this “risk off” approach is a way to ~lock in the funded status and diversify the portfolio. One thing that’s always surprised is the disconnect in the investment opportunity set for defined benefit (DB) and defined contribution (DC). As the article suggests, DB plans are increasingly leaning into less plain vanilla investment styles while DC core menus are pretty basic. I explored core menus for 401(k) plans in some recent research (link below) and I found the most notable gaps in asset classes are likely inflation-linked bonds, commodities, and real estate, although other asset classes, such as long-term bonds and high yield bonds, deserve wider consideration (in my opinion) as well. I think these asset classes are especially value for retirement-focused portfolios, an effect demonstrated in Exhibit 14 of the piece. WSJ article: https://lnkd.in/eWubQ94Q Recent research on core menus: https://lnkd.in/esNcY3QP

If you haven't sat in on a discussion among local authority pension funds to hear their views on place-based impact investing, here is an opportunity to get a flavour of the issues. Local Government Chronicle and IFM Investors recently convened a group of local authority pension funds and pension advisors to consider:   - How can local/national government, LGPS pension funds and asset managers work together to invest in local UK infrastructure? - What is the appetite among LGPS funds to invest locally? - How does one invest locally while keeping the central focus on delivering benefits to members? - What is meant by "local"? - What barriers are holding investors back? - Is there a role for blended finance? - What should government be doing to make local investing more straightforward and more appealing?  Despite the unresolved issues, there was optimism in the room about the potential for local investing, and several of the discussants came from funds that have already demonstrated the art of the possible, e.g. Greater Manchester Pension Fund and Merseyside Pension Fund. #impactinvesting #pensions #lgps #placemaking Nic Paton Neil Mason Karen Shackleton Pensions for Purpose Maria Nazarova-Doyle, CFA Impact Investing Institute Dawn Turner Deepa Bharadwaj Phelim Bolger Christopher Carubia Drummond Clark Paddy Dowdall Martin George Julie McManus CHERRY POVALL Nemashe Sivayogan The Good Economy https://lnkd.in/eSSQT2TG

The private equity equity multi-decade run of delivering outsized returns has ended. This could get ugly. * Private-equity and pension funds seemed like a match made in heaven. U.S. companies and states handed over control of some worker retirement savings. In exchange, they got a promise of high returns after a decade—and often received healthy cash payouts in the years before that. * Now the honeymoon is over. The payouts have dried up, creating an expensive problem for investment managers overseeing the savings of workers retired from big corporations and state and city governments. * U.S. companies and state and local governments manage around $5 trillion in pension money. Large public pension funds have an average 14% of their assets in private equity, Much of the money was committed when low bond yields were dragging down retirement portfolios. * So pension funds are selling private-equity fund stakes secondhand—often taking a financial hit in the process. Secondary-market buyers last year paid an average of 85% of the value the assets were assigned three to six months before the sale,

I recently wrote an article for Pensions & Investments discussing the potential risks to the real estate market from government interference in pension fund investment strategies. While pension funds are pivotal for domestic growth, policymakers must be cautious not to undermine their investment integrity. Ensuring a supportive environment for capital allocation is essential for sustainable economic development. Read the article here: https://lnkd.in/ex9hJEhn

📈 Equities vs. Bonds: Unveiling the Pension Predicament 📉 In the realm of pension investments, choices matter. Let's dissect why Gordon Brown's 1997 decision to tax dividends paid to pension funds was a costly misstep: 🔍 Equities Reign Supreme: According to the Global Investment Returns Yearbook, equities outshine bonds over the long haul. Historical data reveals equities' robust performance, boasting real annual return of 6.5%, far surpassing the meager 1-2% of bonds. 💼 Impact on Pension Funds: Brown's tax hit pension funds hard, reducing their income and limiting funds available for retirees. It shifted focus away from equities, despite their proven track record of higher returns over time. 📊 Real Returns Matter: Real annual returns, factoring in inflation, paint a clearer picture of investment performance. Bonds pale in comparison to equities when real growth is considered. 💡 Dividends: A Game-Changer: The report underscores the power of reinvesting dividends from equities, a strategy that substantially boosts long-term returns. 🔑 The Takeaway: Brown's tax decision not only stifled pension fund growth but also deprived retirees of potential income. It's time to rethink strategies and prioritize investments that secure a prosperous retirement for all. Learn from history and pave the way for a brighter financial future! 💼🌟 #InvestmentInsights #PensionPlanning #FinancialFreedom #deverephilippines #workplacesolutions

In his most recent article for Pensions & Investments, Charles Allen, Head of European Real Estate, speaks about the risk exposure and possible distortion to the real estate market, if governments start to interfere with pension fund investment strategies.   Click here to read the full article: https://lnkd.in/eh_JYw_C

"Pensions, like sovereign-wealth funds, university endowments and family offices, generally either buy properties outright or invest through private fund managers. Some analysts and pension advisers suspect those managers are themselves slow to report losses. Share prices of publicly traded real-estate investment trusts have generally fallen much further than private marks. But pension funds to date have reported even less strain than private managers. Privately managed funds tracked by the National Council of Real Estate Investment Fiduciaries reported a negative 12% return in 2023, double the loss pension funds booked. The tracked funds hold a mix of apartment, industrial, retail and office properties. Pension officials often factor in private fund marks on a one-quarter lag because they take longer to arrive than stock and bond valuations." reports Heather Gillers of The Wall Street Journal

Pension Funds Are Hooked on Private Equity, No Matter the Risks This article addresses a topic I've been writing about since March 2020. Key takeaway below neatly describes what I have called a financial Stockholm Syndrome. Pensions are critically dependent on PE regardless of the risk or unfulfilled promise. Reducing PE return premium assumptions or allocating from PE to public equity increases. the pension deficit and therefore would require increased employee contributions (or other unpalatable means to reduce the defict). This would be an earthquake for pensions that they will avoid at all costs until the pain is severe and obvious enough they can't look away. #pensions #privateequity "Moving 1% of a portfolio from public to private equity will thus add around 0.025% to the assumed portfolio return. That will have a similar effect on the official funded ratio as asking employees to contribute an additional 0.3% of pay, such as from 8% to 8.3% of their gross salary." https://lnkd.in/dWjRSkWm

Unfunded liabilities for U.S. state and local pension plans fell for a fourth year in a row to around $2.5 trillion as of June 30, a plunge of almost 60% from a historic high of $6 trillion in 2020, according to a July 9 report from Moody's Ratings. #USPensions #Investment #Liabilities

Pension plan sponsors: The time is right to explore de-risking strategies.   Interest rates have risen to levels not seen in more than 15 years and with the Fed signaling rate cuts later in 2024, there may be a finite window of opportunity.   See our discussion of 4 risk-reduction strategies that make the most of the current interest rate environment: https://lnkd.in/d8F8V7ae #investments #investmentstrategies #risk #pensions #plansponsors