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As much as I'm a fan of passive investing, I think there are key differences between personal investing and institutional investing. The article mentions that m
by tschwimmer 10y ago
As much as I'm a fan of passive investing, I think there are key differences between personal investing and institutional investing. The article mentions that much of the money is in equity indexes. This strikes me as very risky for a pension fund. What if the market tanks? Presumably the value of the fund will plummet, but he fund will still have to pay out benefits. This is the equivalent of buying high and selling low.
A big part of the job of institutional investors like pension funds and endowments is investing in stable, uncorrelated things. This is trickier where it sounds and accounts for at least some of the higher overhead at other state pension funds.
- Someone 10y ago"What if the market tanks?" It would have to tank long term. If it does, it would take an exceptionally good and somewhat lucky fund manager to constantly find places where the flow goes against the tide and thus still make a good profit. Also, the larger the fund, the larger those places where the flow goes against the tide have to be to make any reasonable impact, and those larger places are rarer. So, if there is a long term problem, it's hard to avoid. For example, obligations in solid economies are stable income sources, but currently all bring little or no interest. That's something that hits pension funds fairly hard now.
- cheriot 10y agoI don't think anything in the article implies next year's payouts are currently in equities.