You left out the consideration of risk comparison. Your 100% equity portfolio assumes much greater risk than a pension plan should take. If the reverse would have happened (i.e. -40% S&P 500), your portfolio would have substantially underperformed. And you (and others) would be stressing how pensions shouldn't be 100% equities given their need to pay monthly cash benefit payments. The main comparison should be how the plan did against their own strategy benchmark and target return on a risk-adjusted basis. PLus, a 115% funded plan has no business taking on added risk that an individual around your age should be taking. Rethink your comparison please. Also, investment professionals always make more that City officials. And his pay and his team's pay is very low on a relative basis when compared to other investment professionals.
I think this a fantastic article if you were comparing the results of a fund manager vs. whether an individual should use a wealth advisor or invest in an index fund. The Warren Buffett bet is such a powerful reference. I actually use it anecdotally often. However, it is hard to say that a pension system should be 100% vested in an index fund. That type of investment is not financially prudent when the retirement distributions (net cash flows) of thousands of former city employees rests on a single performance indicator (an index fund). I will add though that an individual should heed that recommendation while dollar cost averaging over the long run. Going back to another powerful Buffett quote, and I'm paraphrasing "we are all no nothing investors."
To be fair, comparing SFERS performance (while having a multi-asset capital allocation) to a 100% equity based index fund is not apples to apples. SFERS consists of many assets classes so the ~34% in spite of lessening the risk exposure to one asset class is pretty impressive. Furthermore, the pension hasn't been stressed tested in lean years. Protecting losses to the down side is NOT what investing in an index fund would yield for the pension fund.
I hear you on the hedge fund diabolical, but this was a product Coaker likely brought over from the educational endowment space. In the 1990's/2000's top-tier educational endowments started to invest in hedge funds and many of those funds did very well. Endownments were more nimble compared to the titantic moves of pension systems. Hedges funds were even great hedges into 2007/08 - hence the beneficial name. However, there was a lag in pensions getting into the space. Likely due to the conservative investment nature of pension funds. As they started to allocated capital to hedge funds, we ran into the great bull market. The same bull market which lead to Buffett's bet winning. The time lag to get in, along with the tailwinds of a bull market actually did not help the hedge fund performance. However, I'd be interested to see how the fund does in the lean years of a recession / correction.
full disclosure: I'm an employee of the SFFD, dollar cost average into an s&p 500 index fund in my 457 deferred comp plan, and max out my Roth IRA with the same investment strategy.
You left out the consideration of risk comparison. Your 100% equity portfolio assumes much greater risk than a pension plan should take. If the reverse would have happened (i.e. -40% S&P 500), your portfolio would have substantially underperformed. And you (and others) would be stressing how pensions shouldn't be 100% equities given their need to pay monthly cash benefit payments. The main comparison should be how the plan did against their own strategy benchmark and target return on a risk-adjusted basis. PLus, a 115% funded plan has no business taking on added risk that an individual around your age should be taking. Rethink your comparison please. Also, investment professionals always make more that City officials. And his pay and his team's pay is very low on a relative basis when compared to other investment professionals.
Lou,
I think this a fantastic article if you were comparing the results of a fund manager vs. whether an individual should use a wealth advisor or invest in an index fund. The Warren Buffett bet is such a powerful reference. I actually use it anecdotally often. However, it is hard to say that a pension system should be 100% vested in an index fund. That type of investment is not financially prudent when the retirement distributions (net cash flows) of thousands of former city employees rests on a single performance indicator (an index fund). I will add though that an individual should heed that recommendation while dollar cost averaging over the long run. Going back to another powerful Buffett quote, and I'm paraphrasing "we are all no nothing investors."
To be fair, comparing SFERS performance (while having a multi-asset capital allocation) to a 100% equity based index fund is not apples to apples. SFERS consists of many assets classes so the ~34% in spite of lessening the risk exposure to one asset class is pretty impressive. Furthermore, the pension hasn't been stressed tested in lean years. Protecting losses to the down side is NOT what investing in an index fund would yield for the pension fund.
I hear you on the hedge fund diabolical, but this was a product Coaker likely brought over from the educational endowment space. In the 1990's/2000's top-tier educational endowments started to invest in hedge funds and many of those funds did very well. Endownments were more nimble compared to the titantic moves of pension systems. Hedges funds were even great hedges into 2007/08 - hence the beneficial name. However, there was a lag in pensions getting into the space. Likely due to the conservative investment nature of pension funds. As they started to allocated capital to hedge funds, we ran into the great bull market. The same bull market which lead to Buffett's bet winning. The time lag to get in, along with the tailwinds of a bull market actually did not help the hedge fund performance. However, I'd be interested to see how the fund does in the lean years of a recession / correction.
full disclosure: I'm an employee of the SFFD, dollar cost average into an s&p 500 index fund in my 457 deferred comp plan, and max out my Roth IRA with the same investment strategy.