10.02.26
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Ryan ALM, Inc.’s Concern: Stagflation

By: Russ Kamp, CEO, Ryan ALM, Inc.

The U.S. capital markets are sending some interesting, and perhaps conflicting, signals. Treasury yields have risen dramatically, energy prices remain elevated, diesel supplies continue to be constrained, and corporate credit spreads are beginning to widen. Yet inflation expectations remain relatively well anchored and economic activity has held up surprisingly well. What are we to make of all this? I believe we may be witnessing the early stages of an environment tilting toward stagflation.

The problem, as I’ve written before, is that much of today’s inflation isn’t being created by excessive demand. It is being driven by supply issues, particularly within energy. The Fed can raise the Fed Funds rate by 25 basis points, 50 basis points, or perhaps much more, but none of those actions will produce another barrel of oil, gallon of diesel, or unit of refining capacity. Clearly, we aren’t going to plow fewer acres, ship less food, or stop moving goods around the country simply because interest rates have increased. Energy sources are embedded in virtually everything we produce and consume. Higher interest rates don’t fix that problem.

What higher rates can do is reduce demand elsewhere. Unfortunately, that means households get hit from both directions. They pay more for gasoline, food, utilities, and transportation because of the current energy supply issues, while simultaneously paying more for mortgages, auto loans, credit cards, and other financing because of the Fed. Businesses face the same squeeze through higher operating costs combined with a higher cost of capital. Is that really the prescription we want when the original inflationary driver is primarily a supply problem?

The markets are beginning to reflect this tension. The 10-year Treasury yield has moved well above 5% (currently 5.27% at 12:07 pm), producing an extraordinarily high real yield given that longer-term inflation expectations remain near the mid-2% range. At the same time, credit spreads have begun widening, while oil remains expensive and diesel markets remain stressed. Credit spreads aren’t signaling a crisis today, but the combination of these many factors bears careful watching. If credit conditions continue deteriorating while energy costs remain elevated, we’ll have an increasingly powerful stagflation cocktail based on stubborn inflation accompanied by weakening economic activity.

The Fed should obviously be concerned about inflation. However, I still question whether monetary policy can effectively address the inflationary environment that we’re experiencing without creating other problems in the process. The Fed can diminish demand. It cannot create supply. If energy prices remain elevated while real interest rates stay near more restrictive levels and credit conditions continue to deteriorate, we shouldn’t be surprised to see economic growth suffer. We’ll continue watching Treasury yields, inflation expectations, oil and diesel prices, and credit spreads closely as we monitor conditions for stagflation. Current economic conditions are beginning to get very interesting.

10.01.26
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Kudos to Florida and Its Liquidity Statute

By: Russ Kamp, CEO, Ryan ALM, Inc.

You are not likely to know about Florida Statute §112.661(6) unless you reside in Florida and sit on a pension board, and even then, you still might not have heard or read about this statute. It became effective October 1, 2000, as part of Chapter 2000-264, Laws of Florida, enacted through CS/SB 372, “Investment of Public Funds”, which Governor Jeb Bush approved on June 14, 2000,

This provision is the only one of its type among the 50 U.S. states. Florida should be commended for its inclusion in the management of public pension plans. The subsection for this statute is titled “Maturity and Liquidity Requirements.” 

It provides: “The investment policy shall require that the investment portfolio be structured in such manner as to provide sufficient liquidity to pay obligations as they come due.”

It then goes a meaningful step further: “To that end, the investment policy should direct that, to the extent possible, an attempt will be made to MATCH (the statute’s word, not mine) investment maturities (that says bonds to me) with known cash needs and anticipated cash-flow requirements.” As Phil Rizzuto would say, “Holy Cow”! If given the opportunity, I couldn’t have written this requirement any more clearly.

Again, the Investment Policy Statement (IPS) should direct that an attempt will be made to match investment maturities through bonds with known cash needs and anticipated cash-flow requirements. That sounds a lot like Cash Flow Matching (CFM) to me.

So, I ask, within your (IPS) do you have an explicit Liquidity Policy? If so, does it consider Florida Statute 112.661? At the most recent FPPTA conference in Orlando, I was asked to speak to liquidity management practices currently used in Florida. What I discovered is the there are two fundamentally different philosophies:

Asset-driven liquidity

“When we need cash, where can we get it?”

Liability-driven liquidity

“We know when benefits must be paid, so why don’t we arrange the assets today to produce the cash when those payments occur?”

Here are the seven strategies that I was able to identify that are currently being utilized. I’d be interested to hear from those of you that might have adopted some other means to secure liquidity.

Only #7 falls under the category of liability-driven liquidity, which comes closest to adhering to statute 112:661. Given the rapid rise in U.S. interest rates, creating a cash flow matching portfolio for some period of time (10-years) not only SECURES the necessary liquidity, it extends the investing horizon for the plan’s residual assets, while dramatically reducing the cost to fund those future benefits. We are always happy to provide a free analysis on what CFM could accomplish for you and your fund. Don’t let this wonderful rate environment pass you by.

09.30.26
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Is AI Investment Reaching A Natural Limit?

By: Russ Kamp, CEO, Ryan ALM, Inc.

I’ve been spending a lot of time recently thinking about the incredible amount of capital being thrown at Artificial Intelligence (AI). There is no question that AI has the potential to dramatically change how we live and work. But does that mean that every dollar being invested in AI infrastructure is going to generate an acceptable return? I’m not so sure. As interest rates continue to rise, I think investors need to start asking a different question. Instead of asking, “How big can AI become?”, perhaps we should be asking, “How much AI capacity can actually be built economically?”

AI investment is staggering. Microsoft, Amazon, Alphabet/Google, Meta, and Oracle (the Hyperscalers) are at the center of this massive infrastructure buildout. Until recently, these companies generated so much cash that they could fund most of their capital spending internally. That situation is changing rapidly. AI-related capital expenditures are consuming an enormous percentage of their operating cash flow, and the hyperscalers are increasingly turning to the bond market and other forms of financing to keep the spending machine going. Four of the five major hyperscalers have issued significant amounts of bonds in 2026, with Microsoft being the notable exception. Collectively, hyperscaler borrowing has already reached roughly $200–$220 billion this year. Wow!

Why should we care? Because the cost of money matters and this massive investment could profoundly impact equities, bonds, real estate, private equity, private credit, etc. DB Pension plans need to take notice! When Treasury yields were 1%-2%, financing massive data centers and other AI infrastructure was relatively inexpensive. Today, Treasury yields have climbed above 5%, and the 30-year Treasury bond is closing in on 5.7%, while some long-term hyperscaler debt is being issued at 6% or more. Oracle has recently  issued long-dated debt carrying coupons approaching 8%. This reality changes the economics dramatically. It isn’t enough for a $10 billion or $20 billion AI project to generate revenue. It needs to generate a return sufficient to compensate investors for the cost of the capital, operating expenses, electricity, depreciation, technological obsolescence, and the risk associated with the project. What is that return likely to be and where is that return going to come from?

Capital isn’t the only potential constraint. AI requires enormous amounts of electricity, generation capacity, transmission, transformers, land, cooling, water, semiconductors, construction, and, of course, data centers. A large AI campus can require hundreds of megawatts of electricity. High-density data centers can cost roughly $14-$16 million per megawatt, meaning that a 500 MW facility could cost approximately $7.5 billion to construct before considering the broader power infrastructure necessary to support it. We keep hearing about seemingly unlimited demand for AI. Fine! But there certainly isn’t unlimited electricity, grid capacity, construction capability, or CAPITAL. Why does the investment community seem to assume otherwise?

Furthermore, the AI trade may be creating its own headwind. Think about this for a minute. Massive AI capital expenditures consumed free cash flow from most of the hyperscalers. Declining or exhausted free cash flow creates a need for external financing. Greater borrowing produces more corporate bond supply. More bond supply can contribute to higher yields and wider credit spreads. Higher financing costs increase the hurdle rate on the next AI project. Eventually, some projects simply won’t make economic sense. That seems like the beginning of a vicious cycle to me.

As mentioned previously, the implications extend well beyond technology stocks. Equity investors need to determine whether these enormous capital expenditures are actually producing an acceptable return on invested capital. Bond investors are being asked to absorb hundreds of billions of dollars of new AI-related debt and need to be compensated appropriately. Real estate investors financing data centers must compete against a >5% risk-free Treasury yield while dealing with higher construction and financing costs. 

I’m certainly not suggesting that the AI boom is about to end. But I do believe that the AI investment thesis may be entering a very different phase. The first phase was about AI models, semiconductors, hyperscalers, and data centers. The next phase may increasingly be about the scarce resources necessary to support all of that growth, beginning with capital and including electricity, generation, transmission, transformers, cooling, powered land and water. The winners may ultimately be those controlling the scarce resources rather than simply those spending the most money.

Markets have an interesting habit of believing that trends can continue indefinitely. From my 45-years in the investment industry, I’ve come to appreciate that they don’t. There is always a natural capacity to every investment. AI will prove to be no different. At today’s cost of capital, the important question isn’t how much AI infrastructure companies want to build. It is how much they can afford to build while still generating an acceptable return. Are today’s investors and pension plans adequately considering that distinction? I’m not convinced that they are.

I have an idea. While you wait for the AI thesis to play out, buy time (extend the investing horizon) by creating a cash flow matching (CFM) portfolio that will secure the monthly benefits and expenses for some time – say 10-years. This will enable that AI thesis to perhaps generate the desired return while it grows unencumbered.

09.28.26
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ARPA Update as of September 25, 2026

By: Russ Kamp, CEO, Ryan ALM, Inc.

I hope that those of you in the Northeast weren’t too badly impacted by this weekend’s nor’easter. For those of you who are like me and had no idea what the difference is between a hurricane and a nor’easter, here are three main differences. A nor’easter is an extratropical (non-tropical) cyclone, that is formed through temperature contrasts between warm and cold air masses, and usually hugs the U.S. East Coast or nearby Atlantic ocean. A hurricane is a tropical cyclone, formed over warm water in tropical or subtropical oceans. Lastly, the nor’easter season is generally Fall to early Spring, while hurricane season is June to November.

Regarding ARPA and the PBGC’s effort to implement this important legislation, the week wending September 25th was relatively calm, as there was one initial application submitted, one application seeking SFA approved, and another withdrawn. There are currently 38 applications before the PBGC.

Brooklyn, NY-based Production Service and Sales District Council Pension Fund, a non-priority fund, submitted its initial application seeking $92.1 million in SFA for the 3,848 members of the pension fund. As with many of the recently submitted applications, this plan is located in the Second Circuit. On the other hand, Retirement Plan of Local 1102 Retirement Fund, also a non-priority fund, withdrew its initial application in which it sought $3.7 million for the 220 members of that plan.

I’m pleased to report that Bakery Drivers Local 550 and Industry Pension Fund has FINALLY received approval for its application. As you may recall, this plan has been on a merry-go-round in its pursuit of SFA grant money. They were initially denied due to ineligibility back in January 2023. This priority Group two member resubmitted an application in May 2025 only to have that application denied. Well, they must have gotten all their ducks in order, because on September 18, 2026, they were approved for $144.5 million in SFA for its 1,122 participants. Congratulations!

In other ARPA news, there were no plans denied and not others sought to be added to the waitlist.

Timing is everything in life, and for those plans that are about to receive SFA grant assets, their timing couldn’t be better, as U.S. interest rates continue to move higher providing plan sponsors with a great opportunity to secure those promised benefits at substantially reduced future values. Let us know how we can help you.

09.24.26
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This is Embarrassing!

By: Russ Kamp, CEO, Ryan ALM, Inc.

The United States has by far the deepest capital markets in the world, an enormous asset-management industry that has made many participants quite wealthy, and trillions of $s in retirement assets. Yet we rank only 24th of 44 countries for retirement security based on the results from the Natixis Investment Managers’ 2026 Global Retirement index. I find that result embarrassing and you should, too.

The countries ahead of us aren’t necessarily better investors. Many have simply done a better job of making retirement saving broad-based, automatic, and oriented toward producing sustainable retirement income. In addition, they’ve simultaneously reduced risks related to healthcare and longevity that Americans are asked to manage mostly through a defined contribution structure. As regular readers of this blog know, I remain a fan of 401(k)-type plans if they are supplemental to a DB pension offering, but unfortunately, that is rarely the case these days. Again, asking an individual to fund, manage, and then disburse a “retirement” benefit with little to no disposable income, investment acumen, or a crystal ball is just silly.

So why are we so poorly ranked? According to the survey, in which we were once ranked 14th just a decade ago, the U.S. is facing mounting pressures on its traditional “three-pillar” retirement model of government benefits, employer-sponsored plans, and personal savings, as a result of us living longer, DB pension plans going away, and a Social Security trust fund that is projected to be depleted by 2032.

The U.S. score of only 68% looks dismal when compared to Norway’s 83%, which claimed the No. 1 spot from the 44 developed countries included in the survey. Ireland was second with 81%, and the Netherlands came in third with a score of 79%. What do they do better than us? First, the survey isn’t just about retirement security. Natixis evaluates 18 indicators across four broad categories:

Finances in Retirement — inflation, interest rates, tax pressure, government indebtedness, old-age dependency and the strength of the financial system.

Material Wellbeing — income per capita, unemployment and income equality.

Health — life expectancy, healthcare spending and insured health expenditures.

Quality of Life — happiness, environmental conditions, biodiversity and related measures.

So, a country may have a decent, or even good, retirement system but still rank poorly because healthcare, inequality, inflation or government finances create retirement insecurity. Furthermore, most countries ranking ahead of us don’t leave retirement to chance or the individual. The other countries get virtually everyone into a retirement system making savings largely automatic and they make contributions sufficient to produce meaningful retirement income not focused on the size of one’s account “balance”.

Unfortunately, our model since the mid-80s been much more dependent upon individual decisions. An employee has to first work for an employer offering a plan, become eligible, elect to participate, contribute enough, select investments appropriately, avoid withdrawing the money, continue saving after changing jobs, and eventually determine how to convert an accumulated balance into lifetime retirement income. Again, not an exercise designed for the average American worker!

Furthermore, we’ve heaped huge financial burdens on our citizens related to housing, healthcare, education, childcare, insurance, food, energy, utilities, etc. that financing a retirement is nearly a pipe-dream. Not only do we need to once again offer a retirement vehicle that isn’t dependent on the individual for funding, but we need for the U.S. to make living in this country affordable for the masses. Why is it that we spend more $ on healthcare than any other nation yet rank so poorly (only 25th/44) in the survey.

Despite the move from DB to DC offerings, retirement-plan coverage remains an issue. Natixis cites Pew research which estimates that more than 56 million private-sector American workers lack access to a workplace retirement plan. That is a sorrowful statistic. I’ve spent most of my 45-years in the retirement industry focused on protecting and preserving defined benefit plans. I was thrilled to join Ron Ryan and Ryan ALM in 2019 given their similar mission. We need others in our industry to join the fight. Are you ready?

09.23.26
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It’s Flattening!

By: Russ Kamp, CEO, Ryan ALM, Inc.

Have you noticed the Treasury yield curve recently? There’s a great flattening occurring and it is quite beneficial for cash flow matching (CFM) assignments in the 1- to 10-year range. Bond math tells us that the longer the maturity and the higher the yield, the greater the cost reduction when securing future benefits. Our CFM strategy reduces the cost of future benefits by roughly 2% per year or >20% over 10-years. However, most of our clients have asked us to secure only the next 10-years, so capturing longer maturity is somewhat constrained, as we will not own bonds outside the range that we are covering. So the higher yields are quite beneficial. Can you imagine reducing future benefit costs by more than 40% for assignments stretching 20-years or longer?

Despite the fact that the Fed has only raised rates once since 2023, market participants have been demanding higher yields to compensate for the greater inflation and uncertainty. As a result, Treasury yields have elevated during the prior 12-months.

Graph provided by the WSJ

As the information below highlights (rates as of 10:29 am EST) greatest move up in rates has occurred in the 2-year to 5-year segment of the curve. In fact, the 2-year yield is at its highest in 27-years.

Treasury yields in the 2- to 5-year maturities are closing in on 5% levels. Should inflation persist and the Fed once again raise rates, it is not unreasonable to believe that 5% levels will be breeched providing plan sponsors of defined benefit plans with a wonderful opportunity to de-risk a portion of their plans for the next 10-years. That coverage extends the investing horizon for the residual assets of the plan and dramatically enhancing the probability that those strategies achieve the desired performance goals.

As always, we are pleased to provide a free analysis for any plan sponsor who would like to understand the impact that cash flow matching can have on your pension plan. Like Mikie, if you try us, you’ll like us!

09.22.26
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Negative Cash Flow

By: Russ Kamp, CEO, Ryan ALM, Inc.

Negative cash flow occurs when a defined benefit pension plan pays out more in benefits and expenses than it receives in contributions. Don’t panic if your DB plan is experiencing this phenomenon, as negative cash flow is often a perfectly natural consequence of pension-plan maturity. In fact, as a defined benefit plan ages, you would generally expect its cash-flow profile to move in that direction. The issue isn’t the fact that the pension plan is experiencing negative cash flow, the potential problem is how the negative cash flow (liquidity) is financed.

I’ll be addressing this topic at both the FPPTA (9/29 in Orlando) and the IFEBP (10/26 in New Orleans). According to the Public Plans Data (publicplansdata.org), which has robust information on roughly 250 public pension plans covering about 95% of the public assets, 87.2% of the plans are currently in negative cash flow. There are many ways that pension plans are funding monthly benefits and expenses, including:

Liquidity strategyHow it works
1. Cash / money-market reserveMaintain cash, STIFs or money-market funds for near-term benefit payments
2. Contributions + investment incomeEmployer/employee contributions, dividends, and bond coupons fund benefits
3. Fixed-income liquidity sleeveBonds serve as both investment allocation and source of liquidity
4. Rebalancing to fund benefitsSell overweight asset classes and use proceeds for benefit payments
5. Public-market liquidationSell stocks, bonds, ETFs, or other liquid assets as cash is needed
6. Distribution harvestingUse dividends, interest, real estate/private-market capital distributions
7. Cash-flow matching / bond laddersBond coupons and maturities are deliberately aligned with projected benefits

The strategies above highlight two fundamentally different philosophies. The first category are the Asset-driven liquidity group whose practitioners believe that when they need liquidity, they can get it. They are the “When we need cash, where can we get it?” crowd. The strategies that fall under that philosophy include items 1-6 in the above matrix.

The second category is the Liability-driven liquidity cohort, whose supporters claim that “they know when benefits must be paid, so why don’t we arrange the assets today to produce the cash when those payments occur?”. This category includes the Cash Flow Matching and Bond Ladder folks.

The latter strategy is what Ryan ALM espouses for plans with negative cash flow. If you’d like to learn why or to receive a copy of my presentation, don’t hesitate to either reply to this post or email me at rkamp@ryanalm.com, and I’ll be happy to share it with you.

09.21.26
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ARPA Update as of September 18, 2026

By: Russ Kamp, CEO, Ryan ALM, Inc.

Welcome to the first week of Fall. It has always been my favorite season, but given how my football team has played during the last decade, that was putting a damper on this beautiful time of year in New Jersey. I’m hoping that the Giants can turn around the franchise’s recent poor performance and make Autumn wonderful again.

Regarding ARPA, there wasn’t much happening last week above the surface. There were two additional applications received – both falling under the Mass Withdrawal category and as plans located in the Second Circuit. There are currently 39 pension plans with applications before the PBGC seeking Special Financial Assistance. If successful, these 30 plans will be awarded >$1.64 billion in SFA for 71,151 plan participants.

There weren’t any plans receiving approval for SFA, but there also weren’t any plans that had applications rejected or withdrawn. It isn’t surprising that there weren’t any fund’s added to the waitlist, as we are late in the implementation of this important pension legislation.

Currently, there are 20 applications in review by the PBGC that fall under the Mass Withdrawal status, including 19 from the Second Circuit. It will be interesting to see if any non-Second Circuit plans beside California Winery Workers’ Pension Plan are given an opportunity to submit an application.

09.18.26
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I Guess That Other’s Were Confused, Too.

By: Russ Kamp, CEO, Ryan ALM, Inc.

Seems like yesterday’s strong bond rally has already been forgotten, as Treasury yields retrace most of yesterday’s move. As mentioned in my post yesterday, fighting a supply-side oil shock with monetary policy tools doesn’t do anything to improve the supply or delivery of this precious commodity. Tamping consumer demand through higher interest rates may eventually reduce demand for oil, but how soon? We’ll continue to monitor the Fed’s progress as rising oil prices, higher inflation, and increasing rates have potential major implications for defined benefit pension plans. Stay tuned!

Table from the WSJ at 12:05 pm

Will the 25 bps Increase Tackle a Supply Shock Inflation?
09.17.26
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Will the 25 bps Increase Tackle a Supply Shock Inflation?

By: Russ Kamp, CEO, Ryan ALM, Inc.

I’m a touch confused by today’s market activity. The significant rally in both bonds and equities seems a bit of an overreaction to yesterday’s Fed action in which they raised the Fed Funds Rate 0.25% to 3.75%-4.0%. It was the first increase in the FFR since 2023.

Using monetary policy against a supply-driven inflation shock may eventually reduce aggregate demand, but it cannot produce another barrel of oil, reopen a closed shipping route, increase refining capacity, or lower the physical cost of moving goods. It can’t do any of that!

The Fed indicated that inflation remains elevated and that the increase should support a “timelier return” to 2% annual inflation. Yet the current inflation problem is energy focused. August’s headline CPI was 3.4%, with gasoline prices jumping 3.9%. WTI oil is still priced above $100, diesel remains near record levels, jet fuel’s price is roughly double February levels, and natural gas prices remain sharply higher. These issues are unlikely to be addressed through a modest increase in short-term rates.

The Fed believes that changes in the FFR will affect other interest rates, potentially influencing household and business spending and ultimately economic activity. However, raising short-term rates doesn’t address the current shortfall in oil supplies. A trucking company isn’t likely to respond to a 25-bp hike by delivering 5% fewer groceries. Farmers don’t decide NOT to harvest corn because overnight rates increased. Airlines, utilities, manufacturers, and logistics companies continue consuming energy because much of their demand is relatively inelastic in the short run.

Since the Fed can’t directly increase oil supplies, will its attempt to reduce demand elsewhere prevent the oil shock from becoming imbedded inflation? Only time will tell. But how much time? Today’s market action says to me that investors believe that inflation has already been conquered. I’m not so sure.