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Second Largest US Pension Fund To Sell 12% Of Stocks Holdings In Advance Of "Another Downturn"
While many continue to debate if what with every passing day increasingly looks like a global recession, one from which the US will not decouple no matter how many "virtual portfolio" asset managers claim the contrary, there are those who without much fanfare are already taking proactive steps to avoid the kind of fallout that the markets have hinted in the past month of trading, is inevitable. Some such as Calstrs: the nation's second largest pension fund with $191 billion in assets (smaller only than Calpers), which as the WSJ reports is "considering a significant shift away from some stocks and bonds amid turbulent markets world-wide."
The move represents "one of the most aggressive moves yet by a major retirement system to protect itself against another downturn." A downturn which the pension fund implicitly suggests, is now inevitable.
According to the WSJ, the top investment officers of the California State Teachers’ Retirement System will move as much as $20 billion, or 12% of the fund’s portfolio, into "U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund."
Actually considering the relative underperformace of hedge funds, which have largely underperformed the market both during the upcycle, and have fared no better during the volatility of the past month, Calstrs may want to just buy whatever Treasurys China has to sell. Which, incidentally, also answers a suddenly very pertinent question: if China is selling US paper, who will buy it? Well, pension funds for one - the same entities who have had an abnormally heavy allocation to stocks in recent years, and now are seeking to cash out. Which while favorable for bond yields, is hardly good news for stocks - because in this illiquid market, and painfully thin tape, just who will buy the tens of billions of stocks that pension funds will decide to sell.
And it will certainly be more than just Calstrs: once one fund announces such a dramatic shift in strategy, most tend to follow.
So when will the Calstrs reallocation take place? According to WSJ," the board is expected to discuss the proposal at a meeting later today in West Sacramento, Calif. A final decision won’t be made until November. The new tactic—called “Risk-Mitigating Strategies” in Calstrs documents posted on its website—was under discussion for several months as the fund prepared for a scheduled three-year review of how it invests assets for nearly 880,000 active and retired school employees. But the recent volatility around the world has provided a fresh reminder of how exposed Calstrs’ investments are when markets swoon."
Furthermore, as the WSJ points out, the question is now that the market appears to have topped out (at least until the next QE), what will be the proper distribution between stocks and bonds in a typical pension fund portfolio.
Pension funds across the U.S. are wrestling with how much risk to take as they look to fulfill mounting obligations to retirees, and the fortunes of most are still heavily linked with the ebbs and flows of the global markets despite efforts to diversify their investments. State pension plans have nearly three-quarters, or 72%, of their holdings in stocks and bonds, according to Wilshire Consulting.
That number is certain to decline in the coming months.
What is also notable is that while Calstrs’ is at least considering investing in hedge funds, its cousin, the California Public Employees’ Retirement System, decided last year to exit all hedge-fund investments. Other pensions seeking to become more conservative have beefed up stakes in bonds or international stocks. "Calstrs Chief Investment Officer Christopher Ailman said in an interview he hopes the potential shift could help stub out heavy losses during gyrations because the investments don’t generally track as closely with market swings."
Actually they do: if the past few years have shown anything, it is that not only do "hedge" funds not hedge, in broad terms, they are merely highly levered beta chasers, who will gate their LPs at the first sign of abnormal market turbulence. Which is why we wouldn't be surprised if Calstrs ends up reallocating entirely in plain vanilla Treasurys.
As for the punchline, as usual it is saved for last: "Calstrs has not made any major moves in recent weeks amid the turmoil in China and the U.S. markets. Mr. Ailman said he knew there would be turbulence after Asian markets tumbled last month, but he said Calstrs chose to stay put because it views itself as a long-term investor and because its largess means it has limited countermoves when stock prices fall."
Ah, "a long-term investor" - the legendary words every asset managers uses when they have a position that is so underwater, they have no choice but to hold on. Who can possibly forget Norway's sovereign wealth fund which was investing in Greek bonds for "infinity"...
* * *
And while a US pension fund is at least doing the prudent thing, and preparing to rotate out of the riskiest asset just as the market tops out, here comes Japan where things traditionally are upside down, and where we read that with the largest pension fund in the world, the GPIF, having maxed out its allocation "dry powder", another massive pension funds is set to start selling bonds to buy stocks, even as the Nikkei continues to flirt with decade highs. Bloomberg reports:
As the world’s biggest pension fund nears the end of its switch from sovereign bonds into stocks, investors are looking at Japan Post Bank Co. as the next actor big enough to move markets.
The postal lender, the biggest holder of Japanese government bonds after the central bank, sold 5.1 trillion yen ($42 billion) in JGBs in the three months ended June, after offloading a record amount of the debt last fiscal year. The $1.2 trillion Government Pension Investment Fund, known as the whale, said last week stock and fixed-income holdings were all within 3 percentage points of their targets, suggesting it has almost completed a planned shift into riskier assets including global bonds and shares.
The Bank of Japan needs to find about 45 trillion yen in JGBs from the market to meet its annual goal for boosting money supply to stimulate the economy. Japan Post Bank, with 49.2 percent of its 206.5 trillion yen held in domestic debt, fits the profile and needs to seek higher profits ahead of a possible public share sale this year.
The postal bank said in April it plans to increase investments in assets aside from JGBs, such as foreign securities and corporate bonds, by 30 percent to 60 trillion yen in the fiscal year ending March 2018.
Like GPIF, Japan Post Bank has been reducing its dependency on domestic government bonds. The bank owned 101.6 trillion yen in sovereign debt at the end of June, with the ratio falling below 50 percent of holdings for the first time. Unlike GPIF, however, Japan Post Bank hasn’t been increasing domestic stocks. It held just 900 million yen of local equities at the end of the first quarter, unchanged from March.
It will be soon. So good luck Japanese pensioners: nothing screams fiduciary responsibility quite like your asset manager dumping a safe, government backed asset (even if there are 1.1 quadrillion of them) and buying a risky one which is trading at the highest price and valuation since the dot com bubble.
Then again, with Japan's demographic crisis where more adult than infant diapers are sold every year, a little proactive culling of the top-heavy pyramid - courtesy of a few million "so sorry, all your pension funds have vaporized" letter - may be just what the deranged Keynesian doctor ordered.
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"the California State Teachers’ Retirement System will move as much as $20 billion, or 12% of the fund’s portfolio, into "U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund."
They are going to be fucked stupid IF rates are raised in Sept.
They're going to be hosed even stupid-er when the auto-reflex response of diving into the 'safety' of $UST's becomes a thing of the past at breakneck speed.
"Hedge funds and other complex investments"
Complex Investments ALWAYS do well in difficult markets.
Assholes. CalPers and Strs have reputations of being very very wrong. Bodes very well for complex investments. (rolling eyes)
No one cares of they are 'right' or 'wrong' since their managers still get $$$$$ commissions and bonuses.
The pensioners are not organized enough [and probably not smart enough] to lift a finger.
Pensioners don't give a rat's ass as it's the taxpayer on the hook of any shortfalls.
And the plan funding is grossly over reported based upon accumulated befit obligation rather than projected benefit obligations calcs.
Pensioners who are involved in State pensions, like school teachers and service department workers. Maybe they don't, but I sure as hell do. After slaving away more than 30 years in a construction trade I am collecting a modest pension (PEANUTS), and I'm a boomer, and if the SHTF, there ain't no taxpayer who's going to save my ass. The last I looked at the funding for my pension back in May, we were 40% in stocks, 30% in UST's and the remainder in real estate, Muni's and cash. We never asked for much as a Midwestern Trade. We never got near what we asked for either. I just hope the trustees of MY pension fund are FUCKING PAYING ATTENTION! But I can still LIVE in my truck if I have to. It's a whole new ballgame gentlemen.
Maybe Calstrs knows that US bonds are about to be downrated to junk status.
Shouldn't the scumbags that run these funds be taking bribes from jew bankers to go all in just about now???
Oh wait, I'm usually early to the party...
I doubt it because big money only really has 2 places to go, bonds and stocks. If they are selling their stocks then that money is going into bonds because the managers don't get paid to hold cash in an account. This is playing very nicely into a fall turn for bonds (likely the low in interest rates) and that money will scurry back to the stock market when it happens and the results could be quite dramatic.
You take their money away and they'll be organized in a New York Minute! You think these people got into these professions because they liked their job? They got into it because of the gravy. No more and no less. If you think they're going to stand by and take it up the ass, you, sir, are dillusional.
But you know, it's not them that take it up the ass, it's me and you folks! They were the squeeky wheel that got oiled. Now we're about to get greased! How bout that. Educate your children in a good system, watch your children get low paying, barely making it jobs, worry, help, and the retired educators with degrees rape our childlren. Is this the way it is? What a way to live.
right, because teaching in LAUSD has made SO many rich.....
The school district I live in sold bonds and then took the proceeds and 'parked' them in a 'complex investment'. Lost everything! ($32,000,000.00)
It was a school board member that suggested the 'complex investment'.
Regardless, I wonder if the bureaucrats in charge of Calstrs were asked/told to do it by someone...
Seriosly: Why take such risk when they can sit in cash and deploy in any manner at any time to take advantage of opportunites?
WHY is 12% to be allocated sticktly to Treasuries at this juncture?
Shouldn't the prospect of The FED raising rates, we are told still a valid concern at this time, be a matter of considration?
Does somebody need a captured BUYER to soak up new emission or disgorged international reserves??
Just figured it out?
Peter jackson in his pre-Hobbit days knew......
https://www.youtube.com/watch?v=Ulb0pLBgRCw
Yup
Like the MBS shit that got them all into trouble in the first place?
Hope. There's that word again. That which cannot continue, will not continue.
They are going to be fucked stupid IF rates are raised in Sept...
Not to worry, they can always go to the California State Legislature to cover the pension via raising taxes.
CALPERS!
You'd better be paying attention here!
But instead of bonds, just GTFO and into cash etc.
WTF is cash? In 2008 the CP market went illiquid. MM is not cash. There is no cash for an entity of size--only short term paper. Short term UST paper went negative back then; I remember having to go out around 6 months to get a postive yield on bills.
Point taken.
Thinking like an individual here.
Money Market?
Where does a fund of that size put money safely in this environment?
The fireplace.
IT CAN'T put money anywhere safely.
Nobody CAN.
That is the point. RISK IS.
Somebody was being allocated that organic risk in the past...
Even the big bond boys have decided that they would rather trade bond futures than the actual bonds... in an attempt to avoid the music stopping. Pretty sad when they would rather have their Wall Street cronies as counterparties rather than the government... not that it makes any difference accept the banks will get their fees regardless...we really are fucked.
To answer your question on where to put your bucks... keep it real and leverage everything at 20-30%... no more... for at least 30 years if possible.
That and a lot of campbell's soup and bottled water.
Still projecting the Fed is done and will "normalize" ever so gradually and hike in September. Crash risk and bump people into UST.
USD consolidating within a triangle/wedge since March which most likely appears positioned to break to the upside with a strong move past 97ish and ultimate target around 120.
Equities already sent the signal the last couple weeks so after the circle jerking of everyone patting themselves on the back over "how stocks are back to normal" ends the "rally" coincidentally runs into resistance and resumes very strong movement to the downside.
Commods to include PMs essentially do the same with gold breaking $1,000 ultimately, silver under $12, and crude under $30.
All of this is impossible and complete horseshit because I have neither a $250K MBA nor a history of working for CNBC.
If the FED has any clue at all they won't do a damned thing to give the markets a chance to fuck things up worse with more magic money.....
Dr Jim Willie at the goldenjackass.com said the USD continues to rise until vanishes, not crashes, but vanishes. How could that happen? A massive dumping worldwide of UST' and increasing demand for the dollar and therefore more printing to infinity and beyond till is dies.
https://www.youtube.com/watch?v=_9amqA9uUg0&feature=youtu.be
http://www.gold-eagle.com/article/hidden-trillion-qe-monthly-volume
Agree on further rise in USD. As I stated possible it breaks out from this wedge/triangle upwards and DXY tests 120ish ultimately. Look at a monthly chart it broke a resistance line going back to 2004. The move up since last summer saw a couple of little wedges break to the upside and this is the first longer term consolidation in the new USD bull.
Not so sure about vanishing as I'm more open to the Big Reset taking place and why would China/Russia want to kill the U.S. when they need all of its sheep to buy their exports among other things. Additonally, though they want to divest of UST they can't do that instantaneously and will need time to divest without killing their own positions. So aside from TA why could USD head higher maybe some of the following: global margin call forcing liquidation of USD based assets and literal demand for USD, EM plunging economies and intentional devals, "flight to quality" flocking to the skank with the fewest stretch marks, and other policy moves such as JGB/ECB QE along with Yuan deval while the Fed does NOT at least explicitly increase the printing scam.
Mom and Pop will pick up the slack and buy all those stocks. And stuff.
There you have it. The EMs dump $12 trillion of USTs and then get absorbed by the $19T lying around (and eyeballed by every mother f'er in DC) in pension reserves. Remember there are no buyers out there for this kind of stock dumping which will like reduce that $19T to around $10T which is almost enough to suck up those Treasuries and take the Quatitative Tightening pressure of the Fed. The resulting stock market collapse has already been chalked up to 'it's all China's fault'.
So congratulations to the US baby boomers, forget MyRA, this is how your pensions will become high quality (/sarc) US debt. Curiously of the Fed's employers, the TBTF big banks. The U.S. dollar will then collapse in value in FX and your pensions will become almost worthless.
So if you aren't one of the lucky few 'redemptioners' taking advantage of this dead cat bounce and putting that money into PMs you're shit out of luck.
"Commods to include PMs essentially do the same with gold breaking $1,000 ultimately, silver under $12, and crude under $30.
All of this is impossible and complete horseshit because I have neither a $250K MBA nor a history of working for CNBC."
Nice.
Looks like a buying opportunity for real money may be on the way...
I commend the management of Calpers for getting out of the markets. They should not have been allowed to gamble with other peoples money in the first place. The people that allowed gambling with other peoples need to be put into prison. They are financial perverts.
The Fed forced pension funds into the market with ZIRP. The rotation out of the market has begun.
note to calstrs: algos don't need two months advance warning to front run you. they only need about twenty milliseconds.
also: treasurys and hedge funds, what a great allotment mix! [/sarcasm]
Agent K: Must've neuralyzed myself to keep it from myself.
Agent J: - Good plan.
[/MIB2]
Yes its funny how they did not mention PMs as one of the options...
75% tax on all illegals
Fuck the BoJ and Belgium... Calsters will buy all those UST China is unloading.
All that Keynesian logic the public skool system has taught over the last few decades has run full circle.
funny how shit always just magically works out for the maggots. clastrs announces they are buying ust, which jpm, citadel, et al just happened to have picked up from china recently.
Jay, ain't seen you in a while. Did you peep that drop-top thing out front? My business is banging, dog. You gotta check out the website... [/Jeebs, MIB2]
It's for the children buzz.
How much physical PM does your pension fund hold?
Is it smart to hold nothing?
A final decision won’t be made until November.
Hmmm. Calstrs isn't Latin for "bag holder", is it? Guess we'll see how things pan out this fall. No pun intended.
Selling stocks makes sense, look at this chart thru today!
http://www.showrealhist.com/recDJIAtoRD.html
Yeah, inflation is a bitch. That's what log scales are for. Gotta flatten out the recent bubbles.
so the Japanese elitists charged with fiduciary responsibility to a mono-culture - approved the multiple nuclear plant installs on major fault zones that were known to generate multiple Tsunami's up to posted elevations higher than the roof of the plant for hundreds of years
and now at the apex of the market - the Japanese Elitists invest the retirement funds all in equities of multiple generations of this mono-culture
then its clear either
someone outside the country is in charge for a long long time - say 70 years - or they want the end of the DNA by design
A small fraction of fund money moved into gold would send the price soaring very quickly. They don't do it now because the managers are a herd and gold ain't doin' nothin'. When the move starts those who were patient will be amply rewarded.
"in advance" of "another downturn?"
You're not supposed to telegraph it, dumbass.
Oh well, now that it's out ... let the mayhem begin!
My financial advisor told me to move 50% of my money into cash...I did so...that was three years ago...do you see the tears streaming down my face..they are the color of yellow..
They were actually right even though the market went the wrong way. Give it a little more time and you will get in cheaper. ack in the middle of 2011 was really the last time the markets were valued fairly. Now all the games reverse on the posers.
HOW BOUT WHEN THE HEDGE FUNDS GO BELLY UP .......
the ENTIRE financial system is based on OPTIMISM.....
not REALITYor LOGIC....
GOOD LUCK
hey CALIFORNIA WORKERS....... GOOD LUCK WITH YOUR "PENSIONS".......DONT BANK ON IT
Take a special note on what the article above says concerning japan. Back in June with little fan fair Japan Post said that it will significantly alter its investment strategy as the state-owned group revamps its 300 trillion yen portfolio. Because of the mere size of Japan Post Holdings this is should be considered a signal of major importance and has far-reaching implications.
Traditionally, with close ties to the government the investment strategy of Japan Post has been very conservative with low-yielding JGBs making up more than half of its portfolio. This may someday be looked on as a watershed event as to how the Japanese began shifting away from a falling yen to protect their wealth. More on this story below.
http://brucewilds.blogspot.com/2015/06/japan-post-holdings-to-move-away-from.html
I'm curious to know who Calstrs advisors were in this decision.
In other words, who is front running them on this massive trade?
And the bigger fool is...the last fool holding the bag.
Queue "Let the bodies hit the floor".
https://www.youtube.com/watch?v=HORkT4a2MhQ
The first and most important question you have to ask is why have defined beneift plans for public employees at all? After all, no one in the corporate world expects or gets a pension. What they get are 401ks that they have to manage themselves. Yet, the most stable (meaning you have to use actual dynamite to dislodge a public employee short of them dying) employment around. Aftter all, some trillion dollars of "stimlus" money that ovomit asked for and got went to ensuring that public employees didn't lose their jobs and to shore up their pension funds. While the rest of us sucked hind teat.
So, you say, they aren't going away anytime soon (for example, the crafty bastards in CA have it written into their flippin constitution). So, what to do? The first thing you have to realize is that these pension funds can't meet their obligations unless there is massive infusion (yeah, that's right, ante up taxpayer and don't think just the CA taxpayer will have to ante up). In the case of CALSTR, they are some 75 billion short and getting shorter by 22 million a day according to that twit governor moonbeam.
If the above weren't enough, the pension fund is dodging disclosure of such things as "carry" fees to Private Equity firms that they do business with (is it 2 and 20, who knows?).
The point is that we should be concentrating on just getting rid of them - give present retirees a lump sum and the rest will get and like 401ks like the rest of us.
Well they wont even consider repositioning until November. By then the market will be making new 2 year lows or new 52 week highs. Good risk management pension funds.
Hey man financing an unwinnable war with Russia is capital intensive, and CA and Franklin are in need of donor investors http://www.bloomberg.com/news/articles/2015-01-29/hasenstab-sees-3-billi...
Buycaliforniabonds.Com bitches
Of course, they would never default! Heh.
As Gross says : Cash the Crash
Good thing they didn't sell 13%.
15% Large Cap Value
15% Large Cap Growth
10% Mid cap Blend
10% Small Cap Blend
10% International
10% Short term Bonds
10% Mid Term onds
10% Long Term Bonds
10% Alternatives - Real Estate, precious metals, Hedge Funds, Etc.
It is obvious that rules need to be in place to protect the taxpayers and pensioners from the thiefs that run these plans.
Such an allocation is cheap to administer and has without fail, enabled pension plans to meet obligations and remain fully funded through all but the deepest corrections.