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That is true. But I'd say it's better for the funds to be honest with the participants than to try to pretend everything is fine and paper over lower returns wi
by _qulr 6y ago
That is true. But I'd say it's better for the funds to be honest with the participants than to try to pretend everything is fine and paper over lower returns with higher risk, because ultimately it won't be fine. Over-leveraging is a strategy that can bring short term results but is destined to fail in the long term — catastrophically.
- em500 6y agoGood luck telling your state workers that they all need to take a pay cut (which is what lower pension returns really are) and/or your local citizens that they'll face a tax hike (if you don't want the state workers to take the hit), because you read in the FT that "companies are addicted to debt", and that we have this hunch that all this debt will collapse at some unknown time in the future.
- _qulr 6y ago"because you read in the FT" is a not a fair response. The linked article is not breaking news, it's an analysis of a well known phenomenon. With great power comes great responsibility. If someone can't be honest, they have no place managing other people's money.
- smabie 6y agoPension funds can maintain lower risk and boost their returns through pure alpha hedge funds, alternatives like real estate, pe, and vc, or through net long hedge funds. Simply investing in low risk bonds and equities actually is more risky than one might think, especially since the historically negative correlation between the two has been breaking down recently. But regardless, pension funds have obligations and should take on the necessary amount of risk so that they can pay out what is owed.