$13 Billion In Month-End Pension Selling

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by Tyler Durden
Monday, Aug 30, 2021 - 01:52 PM

With just two days left in the month attention turns to mandatory capital reallocations in general and pension fund rebalancing in particular. And even though August was not a month with any substantial equity/bond disconnects, Goldman calculates that the theoretical, model-based assumption estimates a net $13 billion of US equities to sell from US pensions given the moves in equities and bonds over the month.

How does this stack up vs history? The bank calculates that the selling ranks in the 31st percentile amongst all buy and sell estimates in absolute dollar value over the past three years. This falls well below the three year average absolute dollar value of $26bn worth of equities to be rebalanced.

Some more charts from Goldman showing the equal-weighted average expected return on asset assumptions - these have been steadily declining this century...

... and here is a snapshot of representative corporate and public defined benefit pension portfolios:

Finally, a quick look at gamma positioning: The Goldman Index Vol desk estimates gamma positioning is much cleaner following August options expiry although there is still some long gamma gradually building up from option supply in the Aug 30th and September expiries. The long gamma primarily sits to the upside between current spot and 3% higher (up to the 4630 area). The desk estimates less gamma exposure to the downside across expiries.

And the gamma per spot level by expiry:

And easier way to visualize this comes courtesy of our friends at SpotGamma: