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Read the rules in the OP before posting, please. In order to ensure that this thread continues to meet TL standards and follows the proper guidelines, we will be enforcing the rules in the OP more strictly. Be sure to give them a re-read to refresh your memory! The vast majority of you are contributing in a healthy way, keep it up! NOTE: When providing a source, explain why you feel it is relevant and what purpose it adds to the discussion if it's not obvious. Also take note that unsubstantiated tweets/posts meant only to rekindle old arguments can result in a mod action. | ||
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JonnyBNoHo
United States6277 Posts
On November 24 2014 08:40 Doublemint wrote: you mean priced in as in "Boom goes the financial system - bail us out or we all go to hell"? Nope. I mean priced in as the asset no longer delivers a superior return relative to its risk. | ||
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JonnyBNoHo
United States6277 Posts
Thanks for the clickbait. | ||
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nunez
Norway4003 Posts
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Doublemint
Austria8760 Posts
On November 24 2014 08:49 JonnyBNoHo wrote: Nope. I mean priced in as the asset no longer delivers a superior return relative to its risk. that's a nice point for a lecture, but you are aware of what happened around 2007 until now, are you? | ||
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JonnyBNoHo
United States6277 Posts
On November 24 2014 08:56 Doublemint wrote: that's a nice point for a lecture, but you are aware of what happened around 2007 until now, are you? Yes I'm aware. I'm guessing you aren't? What would you like to know? | ||
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Doublemint
Austria8760 Posts
On November 24 2014 09:03 JonnyBNoHo wrote: Yes I'm aware. I'm guessing you aren't? What would you like to know? so we have an understanding whose hands not to bite I see  | ||
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JonnyBNoHo
United States6277 Posts
On November 24 2014 09:05 Doublemint wrote: so we have an understanding whose hands not to bite I see Ahh, you're one of those people that have a strong opinion about something they don't understand, nor want to. Love that type  | ||
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Doublemint
Austria8760 Posts
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JonnyBNoHo
United States6277 Posts
On November 24 2014 09:15 Doublemint wrote: thank god for crusaders of the righteous. who would look out for them otherwise? oooo burn! You brought up the issue to discuss and now you just want to make snarky comments? Did you only want to hear from people who agreed with your pre-conceived opinion? | ||
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Doublemint
Austria8760 Posts
On November 24 2014 09:21 JonnyBNoHo wrote: oooo burn! You brought up the issue to discuss and now you just want to make snarky comments? Did you only want to hear from people who agreed with your pre-conceived opinion? iirc you were the one to not even acknowledge there was a problem. that is quite the gap to bridge for a discussion. | ||
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JonnyBNoHo
United States6277 Posts
On November 24 2014 09:31 Doublemint wrote: iirc you were the one to not even acknowledge there was a problem. that is quite the gap to bridge for a discussion. I explained my reasoning pretty clearly. What has been going on in US pensions is not unique or odd. Here's what Norway's SWF has been up to recently: Norway’s Sovereign Wealth Fund Ramps Up Investment Plans LONDON – Norway’s giant sovereign wealth fund said on Tuesday that it would manage its $884 billion portfolio more aggressively over the next three years, taking larger stakes in companies and increasing its real estate portfolio. Link Basically the same stuff (private equity is often long term real estate investing, to give an example). One thing you need to understand is that what's going on is not moving money from one fund to a similar fund with a higher fee structure. They are different funds, with different risk and return characteristics. Edit: I should also point out that the story of what pensions have been up to has been often reported on for quite a few years now. Pensions, and public pensions more-so, often run on a long-term asset return assumption. With rates low, they have felt pressure to take on extra risk in order to meet their return target. The more expensive funds, and the more exotic investments are a by-product of this dynamic and the political dynamic contributing to it (greater pension contributions will harm overall spending priorities). It is a buy-side issue. Pensions want this stuff, rather than companies are trying to trick them into buying into it. Edit 2: European pension funds have asset return targeting issues too: + Show Spoiler + Pension funds target ‘unrealistically’ high returns Europe’s pension funds are targeting “unrealistically” high returns, raising the danger of deficits widening still further, according to analysis of 190 pension funds with combined assets of €1.9tn. The analysis by Create Research, sponsored by Amundi Asset Management, found funds targeting a median return of 5 per cent a year, with 28 per cent of schemes pencilling in 6.6 per cent a year or higher. These targets are net of fees, which typically come to around 1 per cent a year. While the targets are not as big as the 8 per cent expected by US pension plans, Amin Rajan, chief executive of Create, said: “We expect interest rates to be low for some time and the expectations for emerging markets returns have almost halved. These [targets] look aggressive alongside the return forecasts for this decade.” Consensus forecasts for returns from developed world equities have dropped from 9 per cent to 5 per cent over the past decade, while those for sovereign bonds have halved to 2 per cent. Emerging market equities are expected to deliver 8 per cent a year, rather than 13 per cent, and EM bonds 4 per cent, down from 9 per cent. With the typical European pension fund having an emerging market allocation of just 8-10 per cent, alongside 40 per cent in developed market bonds and 30 per cent in developed market equities, rounded out with cash and “alternative” investments, that suggests net returns may be nearer 3-4 per cent. “It is difficult to get returns in excess of 5 per cent without aggressive risk taking via shorting or leverage,” said one person interviewed for the report, who described two tactics few pension schemes would be willing to deploy. This could deepen pension funds’ financial problems, given that the report found 73 per cent of pension funds are currently underfunded. Twenty-nine per cent have funding ratios below 80 per cent – and funding levels are typically just 65 per cent on a more onerous buyout basis. “With interest rates where they are at the moment, cash injections [by scheme sponsors] will be inevitable,” said Mr Rajan. The analysis also points to the rapid maturing of Europe’s defined benefit pension funds, as the baby-boomer generation starts to retire and many funds have slammed the door on new members. More than a quarter of schemes are now cash flow negative (with payments to retirees outweighing both new contributions and the income generated by portfolios), up from one in six in 2011. A further 17 per cent are cash flow neutral, against 6 per cent three years earlier. As a result, only 8 per cent of schemes have a “high” risk appetite, Mr Rajan said. Two-fifths of the pension funds surveyed have sought to manage risks by adopting liability-driven investment, while 30 per cent rely on inflation, interest rate and mortality hedges and 18 per cent have tail-risk hedges in place. Link | ||
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Doublemint
Austria8760 Posts
//edit: you can even keep posting things like "see, even china does it" and it still has no merit on the article. //edit2: I am beginning to see very clear now how some come to the conclusion that you are mimicking a sophist with those cheap debate tricks. | ||
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JonnyBNoHo
United States6277 Posts
On November 24 2014 09:46 Doublemint wrote: neither of those arguments addresses the issue at hand. norway does something similar - so it's generally ok is not pretty clear reasoning on the article or what's in it. //edit: you can even keep posting things like "see, even china does it" and it still has no merit on the article. //edit2: I am beginning to see very clear now how some come to the conclusion that you are mimicking a sophist with those cheap debate tricks. I'm not using cheap debate tricks. I'm trying to explain to you the real issues that pensions face and the rationale behind their decision making. Do pensions face real issues? Yes! There are many challenges involved in keeping pensions well-funded with baby-boomers retiring, and fixed income yielding low returns. Is Wall St tricking them into bad investments one of them? No! Pensions are responding to the above challenges (and more) by investing more into higher return assets and hedged positions. Will it payoff? Probably not, at least not in a big way, since beating the market isn't really something you can sustainably do. But their strategy does have merit, it is similar to what private pensions, foreign pensions and all other types of investors are engaging in. Edit: Your article is click bait to trick people who are really unfamiliar with the topic: A document obtained by Sirota and published at his previous employer, Pando Daily, reveals that the contract language for a Blackstone hedge fund invested in by the Kentucky pension system contains language such as: “the possibility of partial or total loss of capital will exist” , “there can be no assurance that any (investor) will receive any distribution”; and “the [fund] should only be considered by persons who can afford a loss of their entire investment.” That certainly sounds safe and conservative. Sounds like boilerplate for every fucking prospectus in the country. But if you don't know that, it sounds scary and you'll forward it to friends, post in on forums and they'll make more ad revenue. | ||
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GreenHorizons
United States24364 Posts
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TheMusiC
United States1054 Posts
By regurgitating the current zeitgeist of "WALL STREET GREED," "too big to fail," etc etc you are really doing yourself a disservice because the financial crisis was incredibly complex and is much, much more difficult to understand than you guys make it out to be (case in point: the argument that investors were "duped" into buying toxic CDO's -- this is a big "maybe" and has been a huge point of debate when it comes to this issue). Banks did their fair share of bad bad bad things to contribute to the crisis, but they weren't the only ones being idiots. It would do people well for starters, I think, for people to understand what the word "short" means. It's a huge misconception that when someone's short they're "betting on it to fail." FWIW though, it seems like JonnyBNoHo has a pretty good approach to thinking about all of this. This kind of finance is hard, and people, at hedge funds, pensions, and banks alike, get paid lots and lots of money (smart people, mind you) to do their homework and make sure these kinds of things don't happen. Disclosure: I work at an investment bank. | ||
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Danglars
United States12133 Posts
On November 24 2014 10:31 JonnyBNoHo wrote: Similar tripe gets forwarded and reposted by ignorant types in the religious community, and they're roasted for their foolishness. Ooh this description sounds bad, it's clearly the Edit: Your article is click bait to trick people who are really unfamiliar with the topic: Sounds like boilerplate for every fucking prospectus in the country. But if you don't know that, it sounds scary and you'll forward it to friends, post in on forums and they'll make more ad revenue. It's a long ways from showing that other, more successful money managers will do it cheaper, but these pension heads pick according to who greased their palms. Complex schemes that charge hefty fees and earn good profits could also be tribute to the skill and reliability of the company doing the work, you know. However, if your conclusion is already picked that wall street is always in every case underhanded in its dealings, then I suppose you don't really need to look further than glancing at these things. | ||
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Doublemint
Austria8760 Posts
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GreenHorizons
United States24364 Posts
On November 24 2014 15:25 TheMusiC wrote: edit: actually you know what, I'd rather not get involved in this argument. There are plenty of papers and articles you can read that analyze, to varying degrees of financial-engineering complexity, the causes, results, and ensuing lawsuits related to the financial crisis and the trades that were at the core of it. By regurgitating the current zeitgeist of "WALL STREET GREED," "too big to fail," etc etc you are really doing yourself a disservice because the financial crisis was incredibly complex and is much, much more difficult to understand than you guys make it out to be (case in point: the argument that investors were "duped" into buying toxic CDO's -- this is a big "maybe" and has been a huge point of debate when it comes to this issue). Banks did their fair share of bad bad bad things to contribute to the crisis, but they weren't the only ones being idiots. It would do people well for starters, I think, for people to understand what the word "short" means. It's a huge misconception that when someone's short they're "betting on it to fail." FWIW though, it seems like JonnyBNoHo has a pretty good approach to thinking about all of this. This kind of finance is hard, and people, at hedge funds, pensions, and banks alike, get paid lots and lots of money (smart people, mind you) to do their homework and make sure these kinds of things don't happen. Disclosure: I work at an investment bank. I'm sure they payed billions of dollars because all of their deals were square... I am not one who thinks that wall street is evil, just puts profit ahead of people or country. How often are we reminded that businesses will just pick up and switch what is essentially their nationality if they think their bill is too high. If the money makers on wall street could make money on America falling and China rising they would just call it smart business. They openly admit to have no national loyalty so why would we expect them to have loyalty to (or the interests of) anyone but their shareholders on their mind. With that context and billions paid out, the idea that they didn't do anything sketchy seems incredibly naive. | ||
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Sub40APM
6336 Posts
Couple links on the pension fund issue: http://www.nytimes.com/2012/06/10/business/south-carolinas-pension-push-into-high-octane-investments.html?pagewanted=all&_r=0 http://www.bloomberg.com/news/2013-02-28/south-carolina-hedge-fund-bet-makes-pension-trail-as-fees-soar.html Five years and $1.2 billion in fees later, its annualized gain of 1.3 percent still trails the median among public pension-systems, according to data compiled by Wilshire Associates Inc. In neighboring Georgia, the $53.5 billion teachers’ pension buys only stocks and bonds. It paid money managers $119.5 million over the same period and its annualized returns of 2.95 percent were in the top quartile. This kind of finance is hard, and people, at hedge funds, pensions, and banks alike, get paid lots and lots of money (smart people, mind you) to do their homework and make sure these kinds of things don't happen. An average hedge fund, filled with smart people, fails to beat a simple index. (http://www.bloombergview.com/articles/2014-11-20/why-some-money-managers-succeed-by-losing) Getting paid lots of money and being very smart does not appear to have predictive powers in terms of market performance (LTCM was the smartest fund until it wasnt). The only funds that are kind of the exception are the pure quant funds, but even their performance is getting worse (http://web.mit.edu/alo/www/Papers/august07.pdf page 23, quant funds leverage has increased 4x while their returns have declined significantly). RenTech's internal fund has posted massive gains but the public fund, and the one that its prospectus specifically indicates the internal fund can trade against, is much more muted in performance. PE funds are the same, the best predictive power of a PE funds returns over 10 years is whether year 7-9 are a hot IPO market and whether year 1-3 were bubbly in terms of price paid. If either the market isnt hot for IPOs or the funds overpaid when they were first locked in you get a bunch of index performance. case in point: the argument that investors were "duped" into buying toxic CDO's -- this is a big "maybe" and has been a huge point of debate when it comes to this issue Its not a big maybe. Some investors were duped, which is why the SEC has been collecting a decent amount of pocket change in the fraud lawsuits and why Fabrice Toure owes Uncle Sam a million plus. And its also why S&P offered a billion dollar settlement -- as their opening position -- to Uncle Sam to take it easy on them. The question "were all investors duped" is closer to a maybe. Some investors simply were hungry for yield or were genuinely stupid or maybe some of them just didnt care because of an agency problem that faces almost all of finance. The CIO of some midlevel German bank hunting for yield doenst care how long the CDO lasts because hes out of there after he collects his bonus. Do pensions face real issues? Yes! There are many challenges involved in keeping pensions well-funded with baby-boomers retiring, and fixed income yielding low returns. Is Wall St tricking them into bad investments one of them? No! Pension funds face the same agent-issues that all high networth individuals face when dealing with people who have incentives to perform in a certain way -- collect assets instead of returns/take high risk chances and so forth. There seems to be a nasty sub-profession of 'investment consultants' who merely act as hedge of hedge fund parasites sucking off fees for literally no value added. And in terms of fund performance, its unclear whether taking the 'higher risk' bets even meet the targets set by the funds they approach, much less hitting the returns these funds need.(I agree with you that in reality a lot of pension funds will just have holes in them.) It seems on the record, most funds (the ones who dont get to the random top 20-30% of funds that actually can outperform an index) would be much better off either building out their own internal teams or investing passively. | ||
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Doublemint
Austria8760 Posts
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