By: Russ Kamp, Managing Director, Ryan ALM, Inc.
We have provided perspective within this blog on the importance of having a long time horizon. In fact, we have multiple blogs that discuss the idea of buying time. I’m pleased to add another post to our considerable inventory. The latest version was produced by Ron Ryan, CEO, of Ryan ALM, Inc. As you will read, Ron had the pleasure recently to speak at the FPPTA in Orlando. It was during the conference that he heard further endorsement of this important concept. Ron was thrilled to hear Mike Welker, CEO at AndCo, state the following: “the greatest asset of a pension is time.”
Buying time within a pension plan is critically important. However, a plan must have the correct structure in place from an asset allocation standpoint to accomplish the objective. Public pension systems have shifted significant assets into alternative investments in pursuit of potentially greater returns, but in doing so they have reduced liquidity to meet benefits and expenses (B + E). Ron astutely points out that bonds MUST be used for their cash flows and not as a return instrument to improve a plan’s liquidity. By carefully matching bond cash flows with liability cash flows (benefits and expenses), a plan can successfully extend the investing horizon (buy time!) for the balance of the pension system’s residual (growth) assets to grow unencumbered. I know that you’ll find Ron’s insights beneficial.