$1.2 Trillion Asset Manager: Forget Volatility, The Real Financial Timebomb Is Public Pensions

by | Feb 13, 2018 | Headline News | 27 comments

Do you LOVE America?


    This report was originally published by Tyler Durden at Zero Hedge


    As we have reported over and over and over (and over, and over), public pensions are in deep, deep trouble.

    In addition critical funding shortfalls (U.S. public pensions had just 71.8% of assets required to meet obligations as of June 2016), many of the country’s largest pensions have completely unrealistic target rates-of-return of 7% on average.


    (Millman 2017 Public Pension Funding Study)

    And while interest rates and therefore the cost of leverage has been at historic lows, and markets at historic highs (until they underwent a brief Vol-fib cardiac arrest last week), the question is what happens when the music stops, liquidity dries up, and economic contraction besets (or catch up to) the markets?

    David Hunt, CEO of $1.2 trillion asset manager PGIM, is asking this exact question.


    “If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list,” Hunt said in a Friday interview with Bloomberg, discussing what municipalities and states will do when local tax revenues decline and unemployment worsens. “So we’re worried about those pension obligations.”

    PGIM, owned by New Jersey-based Prudential Financial, advises 147 of the 300 largest pension funds around the world. Hunt joined Prudential in 2011 after leaving McKinsey & Co., where he doubled assets under management, renamed the business PGIM, and bought a Deutsche Bank AG unit to expand in India.

    In other words, he knows the business like the back of his hand.

    Hunt said that corporate retirement funds typically outperform their public counterparts. To that end, one of the most difficult aspects of managing money for public plans, says Hunt, is the fact that lawmakers are promising unrealistic goals to retirees. As such, he has advised public-pension clients to stop seeking the highest returns, and “start doing what the corporate folks have long been doing, which is to find ways to minimize the deficit and to take risk gradually off the table.”

    Of course, that will never happen, and instead pensions will soon be begging Credit Suisse to recreate the XIV just so they can go long.

    The PGIM CEO also sees a shift in equities markets as fewer firms pursue IPO funding – instead opting for private equity. as Bloomberg notes, the number of publicly traded U.S. companies shrank from over 8,000 in 1996 to around 4,300 in 2016, according to Ernst & Young.

    “More than any other period in our history we’re going to have companies that are owned by private equity rather than the public equity markets,” Hunt said. “The dynamism and growth of the economy is now more and more being captured privately and by institutions rather than actually available for you to own in your 401(k) account or for other public markets.”

    One could almost say that as central banks nationalize the markets, leading to idiotic valuations, it is a handful of private capital holders who end up with all the gains. As for everyone else… well, you have all those “fully-funded”, non-timebomby pensions to look forward to.


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      2. Keep the lawmakers out of running the funds and leave it to professional fund managers. The lawmakers try to direct the investments to further social goals rather than making sound financial investments. Maybe indexed funds.

        • Exactly! Chicago’s public workers pension is run right now by a SJW limpwrist pajama boy, whose priority is investing in “progressive & sustainable” ways (meaning no fossil fuels, no finance, etc etc). Even before this idiotic move, they weren’t reaching 7%, but now the return is laughable.

          Fuggin’ pajama bois need to stop running the pensions funds and get back to stroking nutsacks where they belong. ?

      3. Stop stealing from the taxpayers to fund public retirement plans. Public employees can fund their own retirement IRAs. They should not rest on the backs of the taxpayers.

        • You people just don’t get it. It’s not PUBLIC PENSIONS or PRIVATE, or IRA’S, or SOCIAL SEC or any of the rest. It’s all the same SYSTEM. It’s like a fan belt on your car. It’s all one belt. When it breaks it’s all broken. When Social Security checks don’t cash, Gov pay checks don’t cash, retirement pay isn’t paid, house payments aren’t made. Likewise ships don’t sail without good letters of credit.
          You think three States can go under without people trying to save what they have? During the depression the word was: “If you see a line in front of a bank, get in it; then decide if you have any money in the bank.”
          In another article today they talk about 5 days till chaos; Bull. EBT cards didn’t work for 17 hours when everyone knew they were coming back, and we had near chaos. HTF you will be very lucky to have even 17 hours, plan accordingly, Think supersonic line of Dominos.

          • You think that: “full faith and credit” promise on your savings account is any better than Joe Nobody’s pension promise, or your 401k stock? YA sure.

            • Waiting for someone to come along and suggest investing in bitcoin.

            • you make PERFECT sense…..but i don’t think you’re paranoid ENOUGH.

      4. Like I give a durn about public Pensions. Those on the public Payroll where & are overpaid parasites I hope they don’t get any pension.

        • ???. ??????

        • OG,
          My BIL is retired Marine,
          Gunnery Sergent, He earned
          his pension.

          I think you are referring to the Democrat
          parasites that infest the government and I
          agree with you, in their cases.

          • rellik – there are 5 basic ‘public’ pensions. 1. military – fine and deserved programs; 2. fire/police/emergency service providers – if promised and part of the salary, they should be promises kept; 3. office/clerks/the working slobs of government – again, if promised and properly funded as part of salaries, promises should be kept. I’d propose a harsh limit on these. 4. any public office official of a high salary (say >$50K apx.) – no, none. They already fall into a category/financial status that they are more than capable to have designed and funded their own retirement program like any other private business person; last 5. Social Security – it IS public. We need to discontinue the program setting a cut-off age….. (I don’t know exactly what would work? Under the age of 35? … a never to be paid point). This would allow those totally now dependent on the program to live out their days; but, then that would be it. Never again fall for the socialism tripe. okay all – there’s a proposal. Fire away.

          • So because someone spent a lot of years being cannon fodder for the UN NWO and Agenda 21 they deserve something?

            • Its not unlike getting paid x per hour on Friday for work performed the week before, you deserve what your promised, period. Pension is just deferred by years not days. Its not a hand out, its not a gift.

            • Yes ‘Old Guy’ – yes. Without a military, you cannot keep a country. It is not a Mr. Roger’s world. I understand your point; but, go with care in your words – please. I lost a son in the Persian Gulf. He joined the military for good purpose. That’s all I ask of you. Just think a bit and consider that some young men actually love our nation and are willing to die for the idea of it.

              • Having also lost a child I feel your pain. However those military actions are not the Keep America free and protect the American freedoms that they are portrayed. They are money making deals. and Used to evforce that the USA dollar is the dominate world currency. And these cannon fodder wherent drafted . They willingly joined. Those lying recruters need to be hanged. And like it or not How are our gullible young folks gonna learn all the facts if somehow the troops are deemed untouchable and the negative aspects of our military imperialism are not discussed. Only a stupid Dumbass encourages their child to join the military. The military is the enabler of the UN NWO and Agenda 21. Protect Americas Freedom my ass.

                • We could continue this – and someday should over a couple of cups of coffee. I again state one fact I hope you agree with – without a military no nation can stand. Whether it has been corrupted or not, I’ll not argue. For, I do agree, it has. But, because the leaders are crap does that make those who still wish to defend our land also so? Would you not fight to preserve this nation? Old Guy – my wish for you is to never face such events in your life or in the ones of your own. You hear me? It is not something that can be understood. It must be lived (on) with.

                  • I know the Military is actually in charge. If anyone thinks that the elected officials are in charge. I ask them this If you Got every member of congress the president and the supreme court. And They decided to inspect every square inch of Area 51. would they be successful. How about if they wanted to view the empty vaults at Ft Knox? The military isn’t something to be worshipped exalted or not be questioned. Its ran by old men. old men who start wars and expect young men to fight them. What I boils down to is there are too many takers and too few makers. And that is never long term sustainable.

      5. You will all be working your entire lives you filthy slaves, Now start rowing the ship faster, because the Captain wants to go water skiing today.

        Its all going down. Cash your entire pension out NOW and take a one time cash pay out, pay off all your debts and stock up on Silver, food, guns, land, bullets and fuel. Git it while the gittin is good. My neighbors ran out of food yesterday and they are waiting on their Food Stamp Card. Today they drove 12 miles to go get a $5 Pizza. Its a wake up call you dopes, you better have several years of food on hand. Trump is cancelling the entire food stamp card program and cash giveaway, and is going to replace that with just sending you boxes of food made in the USA only. Article out today saying that. Way too much fraud waste and abuse going on.

        • Yep. Federal spending is really ramping up. Foreign debt buyers are giving us the big F-U.
          Biggest bullshit I heard lately is we are at full employment. Lying sacks of shit.
          Motherfuckers are broke. Credit is maxed out and people are praying the vehicle won’t
          break down. All you hillbillies keep drinking Busch beer and smoking your generic cigs.
          It’s all good.

      6. The EBT program is funding more pill purchases than food purchases. The cards are buying food but not for the one it was approved for. These people are selling them for 50 dollars cash for 100 dollars of food stamps.

        • I see that happening at grocery stores all over my area

          • Its not just using EBT cards as currency but also what they buy in food. It should be limited to only nutritious staples. Ice cream was a treat when I was a kid. It should be bread, meat, vegetables, eggs, milk, rice and pasta.

      7. POOF!

      8. Public pensions are in deep, deep trouble. Every year since the late 1980’s the same old story. Wasn’t Chicago and Illinois suppose to go Mad Max by now? Trump just gave my money away by giving the milk producers a billion dollar subsidy so the farmers can dump millions of gallons of milk, because there is a glut of milk in the stores and the milk producers are “losing money” with milk at $2.00 a gallon. Spring time there will be a glut of meat and they will lose money on that and cull their herds again like they did two years ago, rinse and repeat, the US taxpayer gets screwed over and over.

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