Concepts In Advanced Asset Allocation

What does the title of this post mean to you?

I just got back from Las Vegas (IFEBP), where I had the chance to present twice on this topic.  I began my talk by apologizing up front (usually not a great way to start a talk) to anyone attending the session thinking that they were going to glean insights on how much they should allocate to growth versus value, or large versus small, or U.S. versus international or if they should go into alternatives and hedge funds because that just wasn’t going to happen.

The above-mentioned scenario is played out in nearly every conversation between asset consultant and plan sponsor and has since our industry moved from having a single bank trust department manage the entire pension plan in some balanced approach. The focus on trying to earn incremental return relative to the ROA by shifting among asset classes and managers is a fools game! I equate this to being nothing more than rearranging the deck chairs on the Titanic.

In case you haven’t realized this yet, defined benefit plans are going away in all sectors (public, Taft-Hartley, and certainly, corporate), and the trend isn’t your friend. The fact that we continue to do the same thing year in and year out is mind-boggling! STOP! Managing a pension plan is not an arms race in trying to generate the highest return.  It is all about providing the promised benefit at the lowest cost.

Unfortunately, the ROA is the pension industry’s iceberg. Are you prepared for the coming disaster?

Oh, BTW, I am happy to share with you my presentation that I delivered.  Just ask!

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