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Mercer Quits US Public DB Investment Consulting
Earlier this week, Benefits Canada reported that Mercer quits public U.S. DB investment consulting (HT: Johnny and Dave):
Just as plan sponsors are moving away from defined benefit (DB) pensions, so too is global consultant Mercer.
Mercer
told its 24 public U.S. DB clients that it will no longer be offering
investment consulting services. Charles Salmans, partner and director
of global public relations with Mercer said the company is working on
transition plans for these organizations. “We want the transition as
smooth as possible.”
A
statement released by the company said, “We will be working with our
defined benefit clients to help ensure a transition period so that they
can identify another investment consulting firm that can perform
defined benefit investment consulting advisory services."
The
statement also said that this decision was made "after a comprehensive
review of our business and in light of changes in the public fund
marketplace.”
Salman
indicated that the decision is not directly related to either of the
lawsuits that Mercer has settled in the last year and a half, regarding
actuarial services. In both of those cases Mercer denied liability.
“We
stand behind the professionalism and integrity of our investment
consulting work for the public sector. Having said that, we are always
evaluating our business and making prudent business decisions, and risk
is certainly one factor that we consider in these decisions,” the
company said.
Mercer's private clients and
those in Canada need not fret. The company will continue to offer
investment consulting services to plans outside of the U.S. and to
private DB plans in the U.S.
I wonder if this decision had anything to do with Mercer's little Alaska problem
where the Alaska Retirement Management Board accused Mercer of
underreporting by more than $2.8 billion the contributions required to
fund the plans.
I got to be honest, I'm not a big fan
of investment consultants. I think a
lot of them are peddling terrible advice and they have no skin in the
game. Unfortunately, in the US, they act as gatekeepers for many of the
large public retirement plans. You can't get money from any large plan
unless their investment consultant approves it.
And why do the
boards of these plans use them? Simple, to cover their asses in case
something goes wrong. It's cover your ass politics everywhere. That's
the problem in the US. Nobody wants to take responsibility and be
accountable for investment decisions taken at these large public pension funds.
There are some excellent investment consultants, but they're rare.
Usually they're 100% independent and they do take care to understand
their clients' needs before shoving them in some fund that pays them a
percentage of assets under management (always ask why they're
recommending some fund and how they get paid -- flat fee or fee attached
to assets the funds receive).
But I will tell you that
most consultants shove their clients in the same "brand name" funds. I
recently ran across Martin Gagnon, Co-Chief Executive Officer at Innocap,
a Montreal based fund of funds which offers hedge fund managed account
solutions, using a conservative approach to hedge fund investing with a
strong emphasis on transparency, liquidity, asset control and risk
management.
Martin told me that the top five managed accounts
platforms around the world account for over 80% of total managed account
hedge fund assets. It's all about being in the brand names, which is
stupid, because you'll get better service with smaller groups like
Innocap than you will with the larger players.
But investment
consultants are covering themselves too, which is why most of them
recommend brand names, regardless of their clients' needs. Like I
said, with rare exceptions, I'm not a big fan of investment consultants.
If they were that good, they'd be managing money instead of making
recommendations and charging a mint peddling mediocre advice. Let's hope
more of them follow Mercer's lead and get out of consulting US public
DB plans.
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"That's the problem in the US. Nobody wants to take responsibility and be accountable for investment decisions taken at these large public pension funds."
"The problem is not the interest rate, nor the rates of return..the problem is that there is no incentive to lock up capital over the long term, for small businesses. monetary stability, but also, having celebrity banks walking around like children of the mafiosi playing a casino really doesn't help with 'we're working our way to prosperity'."
So the problem with self directed retirement funds would be...?
I have one...I'm doing fine considering the economies of the world. It's the ponzi Socialist Insecurity Taxes that is confiscated from my check that I know I will never see again.
If American pension funds had started buying physical gold and silver
and putting it in their vaults back in 2001, they would be in very good
shape right now.
Exactly.
I guess they thought if they couldn't eat it...
Oh wait...they couldn't eat digitized wealth either or could they?...I guess they did eat it...most of it anyways...LOL.
Time for football.
SeeYa
These "advisers" probably told them, oh don't worry about the gold bull. Gold
doesn't pay interest anyway. Why would you want any PM? Just get yourself
some of these high paying MBS and your pension will do just fine. On top of
that we recommend various derivatives and swaps etc so that your fund will
make maximum profits. And so they did. And now, look at them, dying on the vine.
Someone might say. Well these pension "advisers" really don't know much
about gold and silver nor did they really realize that a gold bull run started in
2001. To that i say hogwash. They knew about it but the reason why they
did not advise their clients about it, is because they figured they could make
more money off of the baby boomers whose pension funds these are, by
advising them to get into very risky investments , which they evidentually did.
Now that they have played out their string so to speak, they are abandoning
this project for greener pastures.
DB would be (almost) sustainable in the case of good economic growth...but why is there no economic growth..two reasons, the value of the median consumer's assets has a poor discount rate and two, economic growth needs (long term) investment whaich has been entirely displaced by speculative capitalism.
By the way, how do pension funds manage to keep losing - all they have to do was to buy something? -pretty much everything has gone up.! strange, no?
The problem is not the interest rate, nor the rates of return..the problem is that there is no incentive to lock up capital over the long term, for small businesses. monetary stability, but also, having celebrity banks walking around like children of the mafiosi playing a casino really doesn't help with 'we're working our way to prosperity'.
The other thing though, DBs' assume that profits will be as they were before. That's not set in stone. If we are in a long-haul recession, one that involves a sizeable build-up of infrastructure- then it is a better thing that profit margins are lower in the industries which have volume. Otherwise, there's little incentive for structural change.
Yes, pensions should have a much greater capital reserve but they also work better when there is productive economic behaviour. They should find such production and invest there.
Pension fund consulting doesn't pay off anymore because buy and hold is dead. Computers now trade with each other on low volume. Most of the American pension funds were broken in 2008 anyway and there is no way they can get back to that point where they automatically make 8 percent a year or more on their investments. That much is obvious.
Respectfully, Leo, how will this drive up the Chinese solar stocks? Defined benefit plans, unsustainable (This is a sign). + growth forever economies, unsustainable. Greece, unsustainable. France, unsustainable. Califorina, unsustainable. I live in Connecticut, unsustainable. Long Gold, Grub, God, goats, etc. Short paper.