Posted by on January 28, 2017 3:08 pm
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Categories: American government Business CalPERS Chinese Wall Economy Exchange-traded fund Finance Financial services Harvard Harvard University Harvard University endowment Hedge fund Institutional Investors Investment Investment management japan Labor money Pension fund Real estate Social Issues

Pension Funds represent the retirement accounts for basically 99% of the working class.  Because they don’t have many choices, unlike Ultra High Net Worth Individuals.  Global Pension Assets stand at a staggering $35 Trillion according to Willis Towers Watson:

  • At the end of 2015, total pension assets were estimated at USD 35.4 trillion, which represents a decrease of 0.5% compared to USD 35.6 trillion at the end of 2014
  • Pension assets relative to GDP reached 80% in 2015, which represents a decrease of 4% from the 2014 ratio of 84%
  • The largest pension markets are the US, UK and Japan with 62%, 9% and 8% of total pension assets in the study, respectively

USD 35.4 Trillion is a lot of assets, no matter how you look at it.  In any systemic analysis we often forget about such huge pools of capital.  Mostly, these assets are sitting in stocks and bonds, some real estate – all traditional.  They don’t invest in alternatives (because of regulatory rules, mostly).  

Well, recently Harvard Management Company, the unit that manages Harvard’s USD 35 Billion endowment, fired half of its staff:

In what may be the most stunning move in the asset management space in years, the WSJ reports that Harvard University’s endowment, which manages just shy of $36 billion, will undergo a “radical overhaul” in the way the world’s wealthiest school invests its money by outsourcing management of most of its assets and lay off roughly half the staff in the process.

According to the WSJ, about half of the 230 employees at Harvard Management Company will leave as part of a sweeping change by the university’s new endowment chief, N.P. “Narv” Narvekar. This means that the endowment will shut down its internal hedge funds and let go traders by the middle of the year. Additionally, the internal team in charge of direct real-estate investments is expected to spin out into an independent entity that Harvard is expected to invest with. Only management of Harvard’s natural resources portfolio and passively managed exchange-traded funds will remain in house.

Is this a sign of things to come?  Well, yeah – Pension Funds like Calpers for example have struggled in recent years… REALLY STRUGGLED.  “Struggled” is an understatement – they lost $30 Billion in 2015.

Many fund managers and traders often scratch their heads at how something can be possible, when there is an apparent sea of consistent strategies offering moderate, if not conservative, returns (like 20% per year.)

But such funds like Harvard and Calpers are rife with politics, and staffed with people that generally don’t understand markets.  Of course there are exceptions – but having a $30 Billion loss without any hedging in place – well, that’s really unprofessional, to say the least.

Of course, once again, who suffers?  It’s not going to be the Pension managers, or the hedge funds they ‘outsourced’ to manage the funds – it’s the beneficiaries – working people.  Retirement plans, pension plans – can blow up.  Or in the best case, as is the case now, they can dwindle down so poorly to the point that retirees get only a fraction of what they are expecting.

There’s really no solution to this problem, except for working people to stand up to their pension managers – which they do from time to time, but the Pension Funds are staffed with a political Chinese Wall of staffers with ‘quick answers’ to shut down their inquiries.  

With the renovations Trump is doing to the system of American Government – is the public pension system next?  Harvard’s move may be a sign of things to come.  And it needs reform, losing $30 Billion like Calpers is at best, shameful.  At worst, illegal.

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