$1.2 Trillion Asset Manager: Forget Volatility, The Real Financial Timebomb Is Public Pensions

As we have reported over and over and over (and over, and over), public pensions are in deep, deep trouble. 

In addition critical funding shortfalls (U.S. public pensions had just 71.8% of assets required to meet obligations as of June 2016), many of the country's largest pensions have completely unrealistic target rates-of-return of 7% on average.

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(Millman 2017 Public Pension Funding Study)


And while interest rates and therefore the cost of leverage has been at historic lows, and markets at historic highs (until they underwent a brief Vol-fib cardiac arrest last week), the question is what happens when the music stops, liquidity dries up, and economic contraction besets (or catch up to) the markets? 

David Hunt, CEO of $1.2 trillion asset manager PGIM, is asking this exact question.

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"If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list,” Hunt said in a Friday interview with Bloomberg, discussing what municipalities and states will do when local tax revenues decline and unemployment worsens. "So we're worried about those pension obligations.”

PGIM, owned by New Jersey-based Prudential Financial, advises 147 of the 300 largest pension funds around the world. Hunt joined Prudential in 2011 after leaving McKinsey & Co., where he doubled assets under management, renamed the business PGIM, and bought a Deutsche Bank AG unit to expand in India.

In other words, he knows the business like the back of his hand.

Hunt said that corporate retirement funds typically outperform their public counterparts. To that end, one of the most difficult aspects of managing money for public plans, says Hunt, is the fact that lawmakers are promising unrealistic goals to retirees. As such, he has advised public-pension clients to stop seeking the highest returns, and "start doing what the corporate folks have long been doing, which is to find ways to minimize the deficit and to take risk gradually off the table."

Of course, that will never happen, and instead pensions will soon be begging Credit Suisse to recreate the XIV just so they can go long.

The PGIM CEO also sees a shift in equities markets as fewer firms pursue IPO funding - instead opting for private equity. as Bloomberg notes, the number of publicly traded U.S. companies shrank from over 8,000 in 1996 to around 4,300 in 2016, according to Ernst & Young.

“More than any other period in our history we’re going to have companies that are owned by private equity rather than the public equity markets,” Hunt said. “The dynamism and growth of the economy is now more and more being captured privately and by institutions rather than actually available for you to own in your 401(k) account or for other public markets.”

One could almost say that as central banks nationalize the markets, leading to idiotic valuations, it is a handful of private capital holders who end up with all the gains. As for everyone else... well, you have all those "fully-funded", non-timebomby pensions to look forward to.

Comments

Antifaschistische NotApplicable Tue, 02/13/2018 - 17:57 Permalink

true....but if you take Pension fund X that has a billion in assets.   Dial the Mark to Unicorn (discount rate) back to something reasonable.  So, their %funded goes from 60% to 40% overnight.  nothing changes when they do that other than the reality check.

Even when the "value" of the fund goes from $1 billion to $950 million in a one day market slaughter...the ability to pay pensions is still in check.

The meltdown begins when the payout/contribution ratios start sinking the portfolio and funds are forced to sell assets rather than pay distributions directly from contributions....rather than investing excess contributions, swelling their fund and pumping up the bond/stock market.   When all these pension funds payout/contributions exceeds 1 and they become sellers....watch out below.

The worst case scenario is that the market makes a major correction BEFORE that selling pressure even hits the floor.

In reply to by NotApplicable

All Risk No Reward Buckaroo Banzai Tue, 02/13/2018 - 15:48 Permalink

The prima facie fraudulent debt-money system is the ROOT CAUSE.

The misdirection of blaming "Da Jews" is childish, but quite effective on people that can't think beyond their emotion based prejudice and programming.

Here's absolute PROOF IT ISN'T "DA JEWS":

The people of the nation of Israel ARE VICTIMS TO THE PRIMA FACIE FRAUDULENT DEBT MONEY SYSTEM, JUST LIKE ALL THE OTHER "MONEY POWER DEFINED GOYIM."

They are victims, too. I know, the propaganda programming doesn't validate reality (that's why it is propaganda - DUH!).

Stop parroting the ideas of others and start engaging your brain.

Here's a chance to start - explain why "Da Jews" in Israel are oppressing and bankrupting themselves through debt-money fraud, OR ADMIT "DA JEWS" AREN'T THE BIG DEMONIC FISH ON THIS PLANET AND THERE IS A MUCH BIGGER FISH THAT HAS ALREADY ECONOMICALLY ENSLAVED "DA JEWS" IN ISRAEL, JUST LIKE EVERYWHERE ELSE!

Or be a Muppet and embrace your Double Think like a small child embraces his "bankie."

In reply to by Buckaroo Banzai

All Risk No Reward Trader200K Wed, 02/14/2018 - 17:44 Permalink

Except he didn't - and you display and awkward ignorance of language that is all too common.

"Jews" is the wrong word.

It is simply wrong, BECAUSE 99.9x% of Jewish people ARE VICTIMS OF THE Money Power.

Blaming "Jews" for the Money Power is every bit as RETARDED as blaming "white people" for the slave trade RUN BY THE MONEY POWER. Note how the Money Power is almost never discussed in relation to the slave trade they operated, and few people are aware they are still living on the opulent proceeds of their evil!

All because people like you don't understand language and how the Money Power Sith Lords use it to manipulate you.

Oh, and you can start looking directly at European Royalty as foundational members of the Money Power. Throw in the Rothschilds and the Rockefellers. There are others.

But for you to equate my Jewish neighbor, who knows NOTHING about the money system, with the MONEY POWER SITH LORDS is simply RETARDED.

Uncritical, effectively mindless, people like you are the main Money Power ASSET.

I hope you are controlled opposition. Really, I do. I understand selling out for some money.

But to be SO PATHETIC AS TO BE THE MAIN ENGINE OF WHAT YOU CLAIM TO OPPOSE, I don't wish that anagnorisis moment on anyone.

In reply to by Trader200K

All Risk No Reward bluskyes Wed, 02/14/2018 - 17:58 Permalink

>>So, it's not them, because they wouldn't eat their own?<<

No, it is them, and they will eat anything that gets in their way.

But "them" is NOT who you think it is.

The "Jews" are not Rothschlds, and the Rothschilds are the sum total of all "Jews."

Oh, and nice job running interference for non-Jewish European Royalty and Rockefellers who are part of the Money Power as well.

They send their thanks - and you run interference for them gratis, right?

Such a sycophant... and you don't even realize it because they've programmed you with their propaganda.

You act like millions of Jews all conspire to own and control the fraudulent money system.

You are delusional, and you can't explain your way out of this expose... irrelevant one liners isn't gonna cut it.

In reply to by bluskyes

mailll a Smudge by an… Tue, 02/13/2018 - 19:32 Permalink

As long as they can keep selling treasuries (bonds, bills, etc.), they aren't unfunded liabilities.  And if they run out of buyers for treasuries, the fed will up their balance sheet (print money) and buy them up.  But if the plug is pulled, well that's a different scenario.  By the way, the public debt just went up over $170 billion a couple of days ago, so it's working, for now. The govt. keeps spending, and the fed keeps printing.

In reply to by a Smudge by an…

Captain Nemo d… homiegot Tue, 02/13/2018 - 15:24 Permalink

Fake money, all of it? Fine.

Steal whatever you can? Sure, it's just the cost of doing business and if you get caught real bad just start another fund.

Manipulate prices while braying free markets free markets? Of course.

Collude to do so while preaching competition to the masses? Why not.

Get government contracts that fleece taxpayers and under-deliver, over-budget and late? Par for the course.

Time to pay what was promised to some of the sheeple? Oh my God, the travesty of it all!!

 

In reply to by homiegot

mailll candyman Tue, 02/13/2018 - 19:42 Permalink

That's only a very small percentage of people you're talking about.  Basically, most city, state and federal workers get pension funds.  You work for 20 years for these governments and retire, then you get a high percentage of your salary for the rest of your life.  If you work for a corporation or a private business or you are a farmer or you work for yourself, you have to work 45-50 years and get no pension.  The whole thing is totally, TOTALLY unfair. In fact, the whole damn monetary system is unfair.

In reply to by candyman