Comments on: Why the fountain of youth would unleash a flood of liabilities http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 19 Mar 2010 07:52:26 +0000 http://wordpress.org/?v=abc hourly 1 By: Bond investor http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/comment-page-1/#comment-85841 Bond investor Thu, 21 Feb 2008 17:02:41 +0000 http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/#comment-85841 Sorry, in my Feb. 9 comment, make that Zvi Bodie, prof. of mgmt at Boston University, not Miles Zvi. The PBGC's dramatic increase in equity allocation announced 2/18 provides an interesting additional aspect this this discussion. They had been 28% equities, no going to 45%. Their bond returns for 2006 were +3.47%, which suggests they did a HORRIBLE job managing their duration. Why weren't they more in long AAA and/or long Tsy assets? Their liabilities are way the heck out in the future. Long govvies were up 8-11% in 2007. Sorry, in my Feb. 9 comment, make that Zvi Bodie, prof. of mgmt at Boston University, not Miles Zvi.

The PBGC’s dramatic increase in equity allocation announced 2/18 provides an interesting additional aspect this this discussion. They had been 28% equities, no going to 45%. Their bond returns for 2006 were +3.47%, which suggests they did a HORRIBLE job managing their duration. Why weren’t they more in long AAA and/or long Tsy assets? Their liabilities are way the heck out in the future. Long govvies were up 8-11% in 2007.

]]> By: Bond investor http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/comment-page-1/#comment-81081 Bond investor Sat, 09 Feb 2008 06:30:12 +0000 http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/#comment-81081 Uh, Merrill and Lehman (and I think UBS, too) came out with Liability-Driven Investing indices last year, some with backdated returns going back decades. So NTRS is not doing anything particularly new. Prof. Miles Zvi has been on this track for years. I don't understand why more pensions (corporate and government) haven't done this. The biggest enemy of a pension is not having enough in long-dated bonds, regardless of interest rate levels. A matched-duration strategy means that even if rates rise, hurting the portfolio, the liabilities decline, because they are discounted at a higher rate. If anything, actuarial smoothing should be reduced so plans aren't made in another galaxy when Treasury rates were at 6%... Uh, Merrill and Lehman (and I think UBS, too) came out with Liability-Driven Investing indices last year, some with backdated returns going back decades. So NTRS is not doing anything particularly new.

Prof. Miles Zvi has been on this track for years. I don’t understand why more pensions (corporate and government) haven’t done this. The biggest enemy of a pension is not having enough in long-dated bonds, regardless of interest rate levels. A matched-duration strategy means that even if rates rise, hurting the portfolio, the liabilities decline, because they are discounted at a higher rate. If anything, actuarial smoothing should be reduced so plans aren’t made in another galaxy when Treasury rates were at 6%…

]]> By: John McLaughlin http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/comment-page-1/#comment-80902 John McLaughlin Fri, 08 Feb 2008 17:50:38 +0000 http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/#comment-80902 “Mr. [Chris] Levell [of New England Pension Consultants] said a third of NEPC’s corporate clients have done some liability-driven investing, a figure that should push toward half by the end of 2008, despite the unfavorable moves in the equity and credit markets.” Is it safe to say that "some liability-driven investing" is a misnomer. LDI is a strategic decision for a pension plan and must be managed on a portfolio level. Earmarking some funds as LDI funds is incongruent with the strategy. “Mr. [Chris] Levell [of New England Pension Consultants] said a third of NEPC’s corporate clients have done some liability-driven investing, a figure that should push toward half by the end of 2008, despite the unfavorable moves in the equity and credit markets.”

Is it safe to say that “some liability-driven investing” is a misnomer. LDI is a strategic decision for a pension plan and must be managed on a portfolio level. Earmarking some funds as LDI funds is incongruent with the strategy.

]]> By: Bill aka NO DooDahs! http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/comment-page-1/#comment-80820 Bill aka NO DooDahs! Fri, 08 Feb 2008 12:52:40 +0000 http://allaboutalpha.com/blog/2008/02/07/why-the-fountain-of-youth-would-unleash-a-flood-of-liabilities/#comment-80820 I am SHOCKED! SHOCKED to find that actuaries engage in hocus-pocus! I am SHOCKED! SHOCKED to find that actuaries engage in hocus-pocus!

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