all in
the math is increase allocation to equities (which in theory provide a greater return over time) and magically lower the amount contributed in the present to achieve a target in the future
in theory the magic of the expected rate of equity return preserves cash for underfunded pension plans
until it doesn't
the math is increase allocation to equities (which in theory provide a greater return over time) and magically lower the amount contributed in the present to achieve a target in the future
in theory the magic of the expected rate of equity return preserves cash for underfunded pension plans
until it doesn't
Starting July 1, 2018 stock markets around the world are going to get yet another artificial boost courtesy of a decision by the $350 billion California Public Employees' Retirement System (CalPERS) to allocate another $15 billion in capital to already bubbly equities. Of course, if this decision doesn't make sense to you that's because it's not really meant to make sense.
As Pensions & Investments notes, CalPERS' decision to hike their equity allocation had absolutely nothing to do with their opinion of relative value between assets classes and nothing to do with traditional valuation metrics that a rational investor might like to see before buying a stake in a business but rather had everything to do with gaming pension accounting rules to make their insolvent fund look a bit better. You see, making the rational decision to lower their exposure to the massive equity bubble could have resulted in CalPERS having to also lower their discount rate for future liabilities...a move which would require more contributions from cities, towns, school districts, etc. and could bring the whole ponzi crashing down.
Comments