02.12.26
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It Should Be Relative and NOT Absolute

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

I was participating on a panel at the Opal/LATEC conference yesterday. The moderator asked a question about the importance of process. In my response, I mentioned a number of process elements that are critical to the successful management of pension plans. Here is one point that I made that doesn’t get the attention that it deserves. Many, if not most, defined benefit pension plans have created an investment policy statement (IPS) that specifically restricts certain investments and their respective weights within the pension fund. The plan sponsor and their consultant likely allow investments in public equities and certain styles of equity management (i.e. value and growth, large and small cap, etc.). However, in many cases they restrict the exposure to any one security by an absolute amount such as 5%. This is the wrong approach.

Limiting exposures does reduce the risk that any one stock could have an outsized impact on the pension plan’s return, but by doing so, the plan sponsor is potentially negatively impacting the investment manager. Not all U.S. equity benchmarks are the same and treating them as such is potentially damaging to the manager and fund.

If a large cap growth manager has been retained and they are asked to manage a portfolio relative to the Russell 1000 Growth Index, limiting exposure in a stock to 5% would mean forcing that manager to make a negative bet against any stock in the index that has a weight greater than 5%. As of today, there are three stocks – Nvidia (12.9%), Apple (11.6%), and Microsoft (8.8%) – that the manager couldn’t own at benchmark weight, let alone own them above the index weight. This index is cap weighted, and as the stocks perform well their weight in the index grows. Not being able to own the stock at its index weight is harmful.

Worse, if the investment manager wants to make a positive bet on the stock, they can’t, forcing them to potentially choose weaker companies to round out their portfolio. When a manager is chosen, they are often picked because of their past track record of producing an excess return for a level of risk (tracking error). Restricting exposures to an absolute weight may render those previous return/risk characteristics moot. Furthermore, the exposure to a single stock should be relative to the weight in the index +/- band, which would be very dependent on the amount of tracking error that is comfortable to the plan sponsor.

For instance, a good information ratio (excess return/tracking error) is 0.33%. Meaning that for every 1% excess return, the manager is taking 3% tracking error. If the manager is hoping to add 2% above the benchmark over a cycle, that manager is going to have a tracking error close to 6%. The relative weight of a stock in a portfolio must reflect that level of potential tracking error. Higher tracking error portfolios need more flexibility. In this case, it would make sense to allow the manager to invest in Nvidia at the index weight +/- 2%. For lower risk strategies such as an enhanced index that only has 1% tracking error, perhaps the index weight +/- 0.5% would be appropriate.

Now, the Russell 1000 Growth Index is one of the more concentrated indexes with nearly 60% of the weight of the index in just the top 10 holdings, but it isn’t the only one. Currently, the S&P 500 has the same three stocks (Nvidia, Apple, and Microsoft) at weights greater than 5% and two others, Amazon and Alphabet, at weights >3%. If the manager wants to overweight a holding in the S&P 500 by +/- 2%, they would be restricted with a 5% absolute restriction and no ability to overweight.

I recommend that you review your IPS and make sure that your “risk control” objectives are not restricting your manager’s ability to produce an excess return. Remove any absolute constraint and replace it with a relative weighting based on the tracking error that the manager produces. Again, lower risk enhanced index managers will only need a +/- 0.5% to +/-1% restriction, while higher tracking managers will need greater flexibility.

02.12.26
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It’s Not A Product – It’s A Service!

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

Anyone who has read my blogs (>1,700 to date) knows that my personal mission and that of Ryan ALM, Inc. is to protect and preserve defined benefit pension plans. How is our collective mission pursued? It is through the implementation of unique client-specific cash flow matching (CFM) assignments. Since every pension plan has liabilities unlike any other fund, a unique solution must be created unlike most investment management products sold today.

Here is the reality: There are a lot of wonderful people in our industry, representing impressive investment organizations, tasked with introducing a variety of investment products. Plan sponsor trustees, with the help of their investment consultants, must determine which products are necessary for their plan to help reach the goal of funding the promised benefits. This is an incredibly challenging exercise if the goal is to cobble together a collection of investment managers whose objective is to achieve a return on asset assumption (ROA). This exercise often places pension funds on the proverbial rollercoaster of returns. The pursuit of a return as the primary goal doesn’t guarantee success, but it does create volatility.

On the other hand, wouldn’t it be wonderful if one could invest in strategy that brings an element of certainty to the management of pension plans? What if that strategy solved the problem of producing ALL of the necessary liquidity needed to fund monthly benefits and expenses without having to sell securities or sweep cash (dividends and capital distributions) from higher earning products? Wouldn’t it be incredible if in the process of providing the liquidity for some period of time, say 10-years, you’ve now extended the investing horizon for the residual assets not needed in the liquidity bucket? Impossible! Hardly. Cash flow matching does all that and more.

I recently had the privilege of introducing CFM to someone in our industry. The individual was incredibly curious and asked many questions. Upon receiving my replies, they instinctively said “why isn’t everyone using this”? That person then said you aren’t selling a product: it is a SERVICE. How insightful. Yes, unlike most investment strategies that are sold to fill a gap in a traditional asset allocation in pursuit of the “Holy Grail” (ROA), CFM is solving many serious issues for the plan sponsor: liquidity and certainty being just two.

Substituting one small cap manager for another, or shifting 3% from one asset class or strategy to another is not going to make a meaningful impact on that pension plan. You get the beta of that asset class plus or minus some alpha. None of these actions solve the problem of proving the necessary liquidity, with certainty, when needed. None of them are creating a longer investing horizon for the residual assets to just grow and grow. None of those products are supporting the primary pension objective which is to SECURE the promised benefits at low cost and with prudent risk.

So, Ryan ALM, Inc. is providing a critical service in support of our mission which is to protect and preserve your DB pension plan. Why aren’t you and others (everyone) taking advantage of this unique service?

02.10.26
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Milliman: Corporate Pension Funding Soars

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

Milliman has once again released its monthly Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans, and the news continues to be quite good.

Market appreciation of 1.05% during January lifted the market value of PFI plan assets by $8 billion increasing total AUM to $1.327 trillion. A slight 1 bp rise in the discount rate to 5.47% lowered plan liabilities marginally to $1.217 trillion at the end of January. As a result, the PFI funded ratio climbed from 108.2% at the beginning of the year to 109.0% as of January 31, 2026. 

“January’s strong returns contributed $8 billion to the PFI plans’ funding surplus, while declining liabilities contributed another $2 billion,” said Zorast Wadia, author of the Milliman 100 PFI. “Although funded ratios have now improved for 10 straight months, managing this surplus will continue to be a central theme for many plan sponsors as they employ asset-liability matching strategies going forward.” We couldn’t agree more, Zorast! Given significant uncertainty regarding the economy, inflation, interest rates, and geopolitical events, now is the time to modify plan asset allocations by reducing risk through a cash flow matching strategy (CFM).

CFM will secure the promised benefits, provide the necessary monthly liquidity, extend the investing horizon for the non-CFM assets, while stabilizing the funded status and contribution expenses. Corporate plan sponsors have worked diligently tom improve funding and markets have cooperated in this effort. Now is not the time to “let it ride”. Ryan ALM will provide a free analysis to any plan sponsor that would like to see how CFM can help them accomplish all that I mentioned above. Don’t be shy!

Click on the link below for a look at Milliman’s January funding report.

View this month’s complete Pension Funding Index.

For more on Ryan ALM, Inc.

02.10.26
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ARPA Update as of February 6, 2026

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

It looks like those of us in the Northeast will finally get some respite from the bitter cold, as temps will moderate this week and actually hit the 30s. However, those multiemployer pension plans currently sitting on the waitlist and classified as a Plan Terminated by Mass Withdrawal before 2020 Plan Year, continue to be frozen in place. According to the PBGC’s latest update, there are 80 plans that fall under the Mass Withdrawal classification. I’ll share more info on this subject later in this post.

Regarding last week’s activity, the PBGC is reporting that one fund, Operative Plasterers & Cement Masons Local No. 109 Pension Plan, a Troy, MI, construction union, will receive $13.7 million for the 1,439 plan members. In addition to the one approval, there was another fund that withdrew its initial application. Norfolk, VA-based International Association of Bridge, Structural, Ornamental and Reinforcing Ironworkers Local No. 79 Pension Fund was seeking $14.6 million in SFA for 462 participants in the plan.

There were no applications submitted for review. It appears that only one non-mass withdrawal plan, Plasterers Local 79 Pension Plan, remains on the waitlist. Fortunately, there were no plans asked to rebate a portion of the SFA grant due to census errors or any funds deemed no eligible.

Regarding the 80 mass withdrawal funds currently sitting on the waitlist, MEPs terminated by mass withdrawal under ERISA §4041A(a)(2) are explicitly ineligible for SFA under ARP/IRA rules, regardless of application timing. Furthermore:

No “initial application” option exists post-termination date.

Mass withdrawal means that all/substantially all employers completely withdraw leading to a plan termination.

PBGC SFA statute excludes §4041A(a)(2) terminated plans.

For the 80 funds sitting on the waitlist, it seems like a long shot that the APRA legislation will be amended to accommodate these funds seeking SFA. I’ll continue to monitor this situation in future posts.

02.05.26
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Continued Steepening

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

Given today’s headline news related to initial jobless claims and layoffs for January, which were at the highest level since 2009, risk assets are once again selling off (Bitcoin -7% and Nasdaq -1.5%), while short-term Treasury notes are rallying. As a result, the U.S. Treasury yield curve is continuing to steepen, as reflected in the WSJ graph below.

The spread between 2-year notes and 30-year bonds was only 43 bps 12-months ago. The spread today is 1.37%. As we’ve mentioned, bond math is straightforward. The higher the yield (30-year Treasury bonds are 29 bps higher today than last year) and the longer the maturity, the greater the cost reduction in the future value of promised benefits.

Let us produce a free analysis that will highlight the potential cost reduction in those future promises either through a 100% cash flow matching assignment or a vertical slice of a portion of those liabilities. You’ll be positively surprised by the potential cost reduction.

02.04.26
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How Do You Know?

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

I’m on my way home from another terrific FPPTA conference. The only issue I have is with the weather Gods. How is it that Orlando had weather similar to what New Jersey experiences during January? Yes, I was in a conference room from dawn to dusk, but it still wasn’t fair, especially since temps are set to hit 70+ today, while I’m now sitting at the airport. 

Okay, enough of my complaining. As mentioned, I just attended FPPTA’s Winter Trustee meeting in Orlando. They continue to do an excellent job providing critical education for trustees of all experience levels. As I’ve written, they have also developed a higher-level program for a select group of pension trustees that truly want to roll up their sleeves and like Dorothy and her friends, get behind the curtain. I’ve been fortunate to be a part of the first two TLC classes. As the FPPTA continues to develop their use of AI and the self-contained bot currently under construction, Florida public pension trustees will have critical information at their fingertips that few other states, if any, can provide. Great job!

Despite the robust curriculum, there is still much more that needs to be covered and comprehended by the trustees. For instance, there was a lot of discussion surrounding hiring and firing of managers during a particular case study. As I’ve observed over the years, the fortunate investment manager that gets hired usually has the best performance and a reasonable fee that doesn’t offset the performance advantage. Do pension trustees truly understand what they are buying? Often the manager selected is large and likely growing in terms of AUM. But are those advantages?

Worse, when a manager underperforms, which they will eventually do, whether that underperformance is related to a style rotation or something specific to that managers process, a decision must be made as to that manager’s fate. Do you keep the manager or let them go? On what basis are you making that decision? Again, you hired a manager because they had good performance. Did you understand their security selection process (insights) and how those insights were working? Did recent strong AUM growth fuel a positive response in the stocks that they owned? As we know, cycles in the investment industry are driven by cash flows, both positive and negative. More money chasing a few ideas drives up returns, while an exodus from those same ideas can tank an investment manager’s performance.

During one exchange of ideas, I asked the TLC participants if any of their funds were using performance fees for their long-only assignments. Only one trustee said that they had – too bad. We’ll discuss that issue in another post. Regarding the one affirmative response, they initiated a performance fee after an extended period of underperformance. Was that action correct? Paying asset-based fees with no promise of delivery on forecasted alpha is wrong, but retaining an underperforming manager may be just as bad whether they are on a performance fee or not. How did this trustee and his fellow board members know whether the manager had skill or if they once did, were their insights still robust?

Investment managers choose their portfolio holdings based on certain insights, and those insights can be measured as to their predictive ability (information coefficient or IC). An information coefficient is the correlation between predicted returns (or rankings of one stock versus another) and the subsequent results (realized returns). If an advisor is a growth manager, they likely swim in a subset of the U.S. equity universe. They then apply their insights to that subset of equity stocks. Each month they can array their portfolio holdings with the balance of the names in the universe that they did not select to see how their ideas stacked up.

You might be surprised to read that a monthly IC above 0.05% is considered fairly strong. An IC from 0.05% to 0.15% would be very strong and likely lead to consistent alpha generation. However, even the best investment ideas can go through challenging times when market dynamics are just out of whack with historic observations and relationships. But there are also times when ideas can get arbitraged away either by that managers growth or the broader investment community latching onto the same insight rendering it less effective or in some cases a negative forecaster/predictor.

So, I ask, when your manager is underperforming, do you know whether it is a market dynamic that is rendering the insight temporarily weak or has that manager’s forecasting ability been diminished? In the case of the manager who maintains strong forecasting ability, but the insight is just out of favor, you would likely want to retain them after a period of underperformance and maybe give them more assets to manage, but I would not recommend putting them on a performance fee (regression to the mean tendencies). However, if after your careful analysis you identify that the manager in question has seen their insights arbitraged away, that should lead you to terminate the manager, whether you like them or not! Let me know if you’d like to discuss his concept in greater detail.

02.02.26
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Financial Leverage – A Double-edged Sword

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

As I recently reported in a blog post titled “Another Cockroach!”,  BlackRock TCP Capital, a business-development company (BDC), reported that it would be slashing the net asset value of its shares by 19% for the Q4’25. I wrote this post because I’ve been concerned about the incredible growth in AUM committed to this asset class. Adding to my concerns is the use of financial leverage to “boost” returns, but as we all know, the impact of leverage can be a double-edged sword.

Recently, Eric Jacobson, Morningstar, wrote an article highlighting the recent travails of the BlackRock BDC with an emphasis on financial leverage. He pointed out that as of September 2025, borrowing within the BDC had increased the market exposure of TCPC’s portfolio to more than 230% of what it would have been without leverage. By Eric’s calculations, the leverage translated into roughly $740 million of net assets alongside nearly $1 billion of borrowed money—a practice that turns uncomfortable valuation adjustments into a painful net asset value drop. According to Jacobson, had the same portfolio been unlevered, its NAV write-down might have a more modest 8% loss. Not great but not nearly as damaging.

Importantly, Jacobson highlights that private direct lending is not a natural substitute for a conventional bond portfolio. We couldn’t agree more. Use investment-grade bonds for their cash flows, as managing a pension plan is all about cash flows. The careful matching of asset cash flows (principal and interest) with benefits and expenses (liability cash flows) SECURES the promised benefits for the period that the allocated assets cover. How comforting!

Another Cockroach!
02.02.26
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ARPA Update as of January 30, 2026

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

So much for escaping the bitter cold in New Jersey by flying to Orlando, FL. The reality is that Orlando is sitting at 25 degrees this morning (Sunday 2/1). Someone is playing a nasty trick on all those snowbirds. It is a good thing for me that I’ll be spending most of my time in a conference room until Wednesday (FPPTA). I hope that you have a great week.

Regarding ARPA and the PBGC’s continuing implementation of this critical legislation, there was activity last week, and some of it was surprising. As I’ve mentioned on several occasions, the ARPA legislation specifically states that all initial applications seeking special financial assistance (SFA) needed to be submitted to the PBGC by 12/31/25. Revised applications could be resubmitted after that date and until 12/31/26. That said, there were three initial applications filed with the PBGC during the week ending January 30th. What gives?

In other news, Cincinnati-based Asbestos Workers Local No. 8 Retirement Trust Plan received approval for SFA. They will get $40.1 million to support their 451 plan participants. In other news, Local 1814 Riggers Pension Plan, withdrew its initial application which had been filed through the PBGC’s e-Filing portal last October. They are hoping to secure a $2.5 million SFA grant for their 65 members.

Fortunately, there were no previous recipients of SFA asked to repay a portion of the grant due to census errors nor were any applications denied due to eligibility issues. Lastly, no new pension plans asked to be added to the waitlist which currently numbers more than 80 systems.

The U.S. Treasury yield curve remains steep, with 30-year bond yields exceeding the yield on the 2-year note by 1.34% as of Friday’s closing prices. This steepening provides plan sponsors and grant recipients with attractive yields on longer maturity cash flow matching programs used to secure the promised benefits.

01.30.26
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“Everybody’s looking under every rock.” Jay Kloepfer

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

Institutional Investor’s James Comtois has recently published an article that quoted several industry members on the near-term (10-years) return forecast for both public and private markets, which according to those asked are looking anemic. No one should be surprised by these forecasts given the incredible strength of public markets during the past three years and the fact that regression to the mean tendencies is not just theory.

An equally, if not greater, challenge is liquidity. As the title above highlights, Jay Kloepfer, Director of Capital Markets Research at Callan, told II that “Liquidity has become a bigger issue,” He went on to say that “Everybody’s looking under every rock.” Not surprising! Given the migration of assets from public markets to private during the last few decades. The rapid decline in U.S. interest rates certainly contributed to this asset movement, but expectations for “outsized” gains from alternatives also fueled enthusiasm and action. The Callan chart below highlights just how far pension plans have migrated.

I’ve written a lot on the subject of liquidity. Of course, the only reason that pension plans exist is to fund a promise that was made to the participants of that fund. Those promises are paid in monthly installments. Not having the necessary liquidity can create significant unintended consequences. No one wants to be a forced seller in a liquidity challenged market. It is critical that pension plans have a liquidity policy in place to deal with this critical issue. Equally important is to have an asset allocation that captures liquidity without having to sell investments.

Cash flow matching (CFM) is such a strategy. It ensures that the necessary liquidity is available each and every month through the careful matching of asset cash flows (interest and principal) with the liability cash flows of benefits and expenses. No forced selling! Furthermore, the use of CFM extends the investing horizon for those growth assets not needed in the CFM program. Those investments can just grow unencumbered. The extended investing horizon also allows the growth assets to wade through choppy markets without the possibility of being sold at less than opportune times.

So, if you are concerned about near-term returns for a variety of assets and with creating the necessary liquidity to meet ongoing pension promises, don’t rely on the status quo approach to asset allocation. Adopt a bifurcated asset allocation that separates plan assets into liquidity and growth buckets. Your plan will be in much better shape to deal with the inevitable market correction.

01.29.26
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What Topics Would You Pick?

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

I’m hopefully attending the FPPTA conference in Orlando beginning on Sunday, February 1, 2026. My attendance will be very much dependent on the path of the next winter storm takes as it migrates up the East coast. I’ve been asked to speak on a couple of occasions at this event for which I’m always very appreciative to be given the opportunity to share my perspectives on a variety of pension subjects.

The first opportunity is straightforward in that I will be addressing the importance of cash flow in managing defined benefit pension plans. In my opinion, there is nothing more important than generating and managing cash flow to meet ongoing plan liabilities of benefits and expenses. As pension plans have pursued a more aggressive asset allocation utilizing significantly more alternatives – private equity, private credit, real estate infrastructure, etc. – liquidity has become more challenging. As a result, some of the strategies that have been adopted to raise the necessary cash flow are not in the best interest of the plans longer term. I’ll be happy to share my thoughts on those issues if you want to reach out to me.

Regarding my second opportunity to share some perspective, I am one of four individuals who were asked to identify three pension related topics for a session called “Around the Pension World Discussion”. There will be six randomly selected topics from the original list of 12 that will be covered in 15-minute increments. It is a really interesting concept, and hopefully as we lead the conversation will get great input from the attendees.

The three topics that I chose are:

  1. Liquidity – it is being challenged through the migration of assets to alternative strategies.
  2. Uncertainty – Human beings hate uncertainty as it has both a physiological and psychological impact on us. Yet little to none of our current practices managing pensions brings certainty.
  3. The Primary Pension objective – managing a DB pension is about securing the promised benefits at a reasonable cost and with prudent risk. It is not a return objective.

Clearly, there are tons of topics covering investments/asset allocation, risk management, governance, actuarial assumptions, plan design, etc. It shouldn’t be surprising why I chose the topics that I did based on my focus on securing pension promises through cash flow matching (CFM). We provide the necessary liquidity to meet those ongoing expenditures, while securing the promises given to the plan participants. In addition, CFM is a “sleep-well-at-night” strategy that brings certainty to the management of pension plans that engage in very uncertain practices.

What topics would you have chosen? Please reply to this post. I’d like to share your topics and the rationale behind choosing them in a follow-up blog. Have a great day!