Thank you so much for a superb and invaluable service. I’ve been a subscriber since the ‘80s. I’ve just recently renewed my subscription again after a short break of a couple of years. Just so enjoying hearing your thoughts and steady guidance through these volatile times, thank you. I’d really enjoy your thoughts re this recent article from Reuters ‘Pension fund blowup faces brutal second act’ which may also be of interest to the collective
Thank you for your kind words and this question which I’m sure others have an interest in. The short answer is the blowup of pension funds in the liability-driven investing (LBI) sector is likely to have a long tail. Pensions are now going to be much more wary about taking on leverage so they are forced sellers of illiquid assets.
Bear in mind that recessions have not started yet. This is the thin end of the wedge in terms of the risk posed by private valuations at extreme levels. Over the past decade, pensions, trusts and endowments have gorged on private assets. At some point, mark to market will become relevant again. When that happens venture and private equity funds will collapse in value.
The decisions on how and whether to fund underwater pension funds is likely to be the most contentious issue over the coming decade and not least because access to pension benefits is far from evenly spread across demographic cohorts. This is setting the stage for a significant battle between pension beneficiaries and contributors.Back to top