Are Corporate Pensions About To Start Dumping Their $1 Trillion In Equity Holdings

Tyler Durden's picture

Several large public pensions around the country are in serious trouble and, after several years of paying out more in distributions than they take in (which is the textbook definition of a ponzi scheme, btw), many are just one more equity market crash away from completely running out of cash.  In fact, we recently wrote about how Chicago's largest pension fund could run out of cash within 4 years if such a scenario played out (see "How Chicago's Largest Pension May Run Out Of Cash In As Little As 4 Years").

And while we hate to be pessimistic, lets just take a look at what happens if, by some small chance, today's market gets exposed as a massive bubble and we have another big correction in 2018.


Such a correction would force the fund to liquidate over $1.5 billion in assets in 2018 alone....



....and the system would run out of cash completely within 4 years.



And while public pensions may be forced to continue swinging for the fences by allocating more and more capital to equity markets, corporate pension funds, according to Bloomberg and Morgan Stanley, are growing a little weary of Yellen's equity bubble and may be looking to rotate capital into corporate bonds instead.

Company pensions are nearing a tipping point that’s poised to send them on a buying spree in the U.S. corporate bond market.


The retirement plans, helped by gains in stocks, are edging closer to digging themselves out of a hole they’ve been in for more than a decade, a shift that is cutting their demand for risky assets like equities and stoking their interest in more stable investments like company debt.


Companies on average have about 82 percent of the funding they expect to require for retirees’ pensions, compared with around 75 percent in the middle of last year, according to strategists at Morgan Stanley. Once pensions are around 80 percent funded, they tend to increase their bond holdings and cut their stock investments to lock in gains, Morgan Stanley analysts led by Adam Richmond wrote in a report on Friday. They funnel much of that money toward high-grade corporate debt, especially longer-dated bonds, to help fund their decades-long obligations.


That trend is already happening and could now intensify, according to Morgan Stanley analysts. U.S. company pension funds own more than $1.8 trillion of assets, and even small changes to their allocations can lift already-high prices for bonds, and weigh on stocks.



In all, non-public pension funds held just over $1 trillion in equities at the end of 2016, or roughly 31% of their $3.3 trillion in assets.  Obviously, reducing that equity allocation target by just 10% would therefore put about $330 billion worth of selling pressure on equities...and that's assuming public pensions don't follow along.



Of course, by choosing to do the right thing and derisk their portfolios, these massive pension funds could very well become the catalyst that brings Yellen's massive asset bubbles crashing if you're going to get out...probably best to be a first mover in what will become a race to the bottom.

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SomethingSomethingDarkSide's picture

Here, hold this bag!  

Don't worry, it's Gucci.

auricle's picture

If they are not allowed to get out at the top this time around then what was the point of the Equity bubble? I was hoping for an orderly flow into PM's right before the real currency cirisis which causes the US to back the dollar with gold. Would keep pensions flush for years. Else a truely deflationary storm would hit if all pensions went bankrupt. 

Creepy_Azz_Crackaah's picture

Not to worry... the 50% of working people who pay federal income taxes will pick up this tab as well. They don't need no stink'n retirement of their own.

Son of Loki's picture

Asians should pressure any pension fund that holds UA. That will get their Boards attention also.

NugginFuts's picture

Consider this the Double Tap execution of the market if it happens. 

And I can't wait. 

TePikoElPozo's picture

who's buying?  the FED ??

wisehiney's picture

That's the way to make the dollar fly.

Consuelo's picture



'Inflate, or Die'...


Now all we need to do is create a catchy jingle with both lines ---

Seasmoke's picture

They sure should. That's for sure.

artvandalai's picture

Why don't they use the money to buy back their own stock?!?! Yeah. That's the ticket!

E.F. Mutton's picture

Oh pooh - what could possibly be safer than TSLA or SNAP?  Gold?

How unfashionable.

HRH Feant's picture
HRH Feant (not verified) E.F. Mutton Apr 11, 2017 1:33 PM

Bitcoin! I like PMs but like BTC too!

Buy $100 and Coinbase will give both you, and me $10 in BTC.

Sages wife's picture

"And while we hate to be pessimistic,..." - Tyler Durden.

I think that's not entirely truthful.

Soul Glow's picture

Trump should call Yellen, tell her to get to work.

Consuelo's picture



Such disciplinary functions are reserved exclusively for fellow Shylocks (I mean - 'Schumers' only)



davinci7_gis's picture

If this ever happened physical gold would skyrocket and there would be a ton of buyers with not one seller!

mayhem_korner's picture

If there was not one would the price actually move?

natxlaw's picture

it's called, no ask. The bid keeps jumping and every ask gets grabbed in a nano no matter how ridiculous.

natxlaw's picture

Imagine you have 4oz of gold and a $100,000 mortgage on your 250,000 house. You are afraid that they will eventually reprice your mortgage in New dollars after a currency collapse (this has happened on the past). If someone will give you $100,000 + $40,000 (for capital gains tax)  for 2-3 pieces of that gold, you may want to go ahead and sell to avoid eventually having your mortgage repriced as 10-20 ounces of gold in New dollars. Then you might kick yourself a week later when your neighbor pays off his $200,000 mortgage with just 1 OZ. 

In this no price environment, the actual price will be whatever someone with gold wants to trade for the amount they are willing to part with, it will just be impossible to calculate on a day to day basis in fiat.

Bemused Observer's picture

By going up until that seller is found. Then THAT becomes the new price. If buyers want it in a market where holders aren't selling, that's what happens.


Not every 'bid' gets the prize, you have to up the ante. As United Airlines has learned, the BUYER does not control the price in a seller's market. He pays it.

silverer's picture

The price rises until you get a seller. I think I'd let an ounce go for $11,340. But that's just me.

silverer's picture

You mean "when this happens".

chief's picture

i bought the dip today on seeing this article, where can i go to confess my sins and get a whipping?

natxlaw's picture

Nope, you gotta do better than that to get one of those.

Iconoclast421's picture

A trillion is chump change. The ECB alone could make up for that.

natxlaw's picture

Yep, they could do that with one laser printer.

GunnerySgtHartman's picture

Zimbabwe has 'em all beat with their $100 trillion bill.

silverer's picture

Turned out to be great investment. Shortly after the bills became worthless, you could pick them up for about $2.50 each on ebay. Now look what they get for them! Notice they are selling at that asking price! Dumb asses buy them, just like they buy US stocks! They are still worthless!

PhiBetaZappa's picture

Of course they are. It's all going into pork bellies.

Reggie Hamlin said so.

ToSoft4Truth's picture

Stock is going on sale and we are being told in advance? 

gregga777's picture

Why not?  The owners of the Goldman Sachs Feral Reserve System ordered chairtroll Janet Yellen to crash the asset markets and they have been selling for quite some time.  When asset prices crash they'll buy them back for pennies on the dollar from the suckers who are still piling into assets.  The motto of the Goldman Sachs Feral Reserve System is:


"We steal from those least able to afford it and give to those who least deserve it."

GunnerySgtHartman's picture

"We steal from those least able to afford it and give to those who least deserve it."

Cronyism's reply to Marxism's "From each according to his ability, to each according to his needs."

whatisthat's picture

I would observe the Federal Reserve will pickup or replace the shortfall of equity and market buyers.

withglee's picture

corporate pension funds, according to Bloomberg and Morgan Stanley, are growing a little weary of Yellen's equity bubble and may be looking to rotate capital into corporate bonds instead.

Now that would be brilliant. Interest rates (and the fake inflation numbers) have been rigged low for a long time. The governments everywhere have been counterfeiting money with abandon ... and that's pure, raw inflation. So they've been winding the spring for years now.

And now, as it looks like they can wind the spring no tighter without breaking it, it is the time to switch to bonds? ... which get clobbered when interest rates increase?

Are you kidding me?

Boris Badenov's picture

You KNOW I hate titles that are in question format! Are you trying to trick by not using a Question Mark!!!!

Ooops, I should say ?????    

Boris Badenov's picture

Anyway, I would answer the question by saying, "It depends on who is managing the stock portfolio". 

There are some people who say Never Sell, and some mutual fund managers who never raise cash levels other than to accomodate redemptions.