Tag Archives: cfm

04.01.26
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March Proves Challenging for Core Fixed Income

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

March was a difficult month for active core fixed income managers, as the Bloomberg U.S. Aggregate Index fell -1.8%. Uncertainty related to the impact of the Iran War on oil prices and subsequently inflation, pushed rates higher across the Treasury yield curve. The U.S. 10-year Treasury note saw yields rise 38 bps to 4.31%.

Agencies fell -1.7% in line with Treasuries, while the Corporate sector declined -2.0%. Corporate spreads ended March with an option adjusted spread (OAS) of 88.6 bps. The best performing Corporate sector was Financials (-1.7%), while Utilities performed worst at -2.2%.

The greatest risk managing bonds is interest rate risk. Given both geopolitical (Iran, Taiwan, Ukraine) and economic risks (oil, inflation, interest rates), now is the time to significantly reduce risk within your fund, whether that be a DB pension or E&F. Why continue to ride active fixed income through these uncertain markets? One can use a cash flow matching (CFM) strategy to SECURE and fund net liabilities chronologically well into the future. In the process, interest rate risk is eliminated as future benefits and expenses are not interest rate sensitive.

Furthermore, by securing near-term liabilities, the non-bond assets can now grow unencumbered providing more time to wade through these challenging times. I have no idea how long this conflict will last. I also don’t know how much damage has occurred and that which might still happen to oil production in the Middle East. Implementing a strategy that doesn’t rely on forecasting U.S. interest rates should be a high priority today.

Making the switch is easy. Rotate your current core fixed income assets from an active investment strategy to a CFM portfolio. There isn’t a need to revisit the fund’s asset allocation. We’ll even look for opportunities to take-in-kind some of your existing holdings. You’ll appreciate not having to search each month for the liquidity to meet the monthly promises that have been made to your participants, as the CFM strategy will provide all the liquidity that you need. Moreover, the Ryan ALM CFM model is skewed to A/BBB+ corporate bonds which should outyield most generic bond indexes that are skewed to Treasuries (e.g. the AGG).


03.31.26
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Trouble Paying the Bills?

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

“The worst thing that can happen,” Andrew Junkin, CIO, Virginia Retirement System says, “is that you’re a forced seller in any market.”

That quote appeared in a Chief Investment Officer article from March 4, 2026. We couldn’t agree more with Mr. Junkin. Despite improved funding, public funds are being challenged to find adequate cash flow to meet the monthly benefits and expenses. Two factors are at play: 1) improved funding leads to lower annual contributions, and 2) much heavier allocations to alternatives have dried up liquidity, as expected capital distributions fail to materialize.

According to a report by NIRS, from 2001 to 2023, public pension plans shifted roughly 20% of public equity and fixed income into alternatives such as private equity, real estate, and private credit. These are illiquid investments. Despite the “wisdom” of the pension crowd, illiquidity is a RISK and not an alpha generator. As more assets shifted into these illiquid investments, the trades became ever more crowded reducing liquidity further. That is, unless one was willing to take a significant haircut through the secondary markets.

As a reminder, public pension funds are designed to become cash-flow negative over time. Contributions into these funds exceed benefits in earlier decades, building a corpus to be used to fund retirements down the road. They are designed to have the last $ pay the last promised benefit. There is no inheritance waiting for the last few beneficiaries.

You want to have adequate liquidity that isn’t forcing the sale of assets at inopportune times? Develop an asset allocation strategy that bifurcates your assets into two buckets – liquidity and growth – and stop the focus on the ROA as if it were the Holy Grail. It isn’t! Use a cash flow matching (CFM) investment strategy to ensure that abundant liquidity is available from next month as far into the future as your allocation goes. The remainder of the assets go into the growth bucket. If you still want to maintain a heavy allocation to alternatives, they can now grow unencumbered as they are no longer a source of liquidity.

The allocation should be driven by the pension plan’s funded ratio and ability to contribute. We recently provided a large fund with an analysis that showed a plan with <50% funding could still secure the promised NET benefits for the next 33-years, while creating a substantial surplus that could now be managed as aggressively as members of that Board could withstand. Not only are the promised benefits secure, but so are the participants who can now sleep well at night knowing that myriad risks won’t sabotage their golden years.

03.24.26
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ARPA Update as of March 20, 2026

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

I’m sure that folks were very (perhaps bitterly) disappointed not to get my weekly update yesterday on the PBGC’s implementation of the ARPA pension legislation. I was traveling for business yesterday, but unlike many travelers, my experience at Newark Airport was shockingly positive. I have heard of 4-6 hour waits to get through security and planes that are forced to leave the gate with as few as 5 passengers. Various estimates put the daily impact of these disruptions at $285 million to $580 million once a 10% reduction in flights occurs.

What about ARPA? As regular readers know, the PBGC has worked through a significant majority of non-mass withdrawal applicants. There remains just one fund – Plasterers Local 79 Pension Plan – that hasn’t gotten to submit an initial application form those on the waitlist. There are still a few pension funds from the original Priority Groups that haven’t filed an initial application seeking SFA.

During the prior week, Cumberland, Maryland Teamsters Construction and Miscellaneous Pension Plan received approval of its revised SFA application. They will receive $9.5 million for their 101 plan members. Congrats!

In other news, there is no other news, as there were no new applications submitted, as the PBGC’s eFiling portal remains temporarily closed. Also, there were no applicants denied, no plans were asked to repay a portion of the SFA, and no applications were withdrawn or added to the waitlist.

The treatment of the 80 plans (from potentially 131) currently on the waitlist that fall under the category of plans suffering mass withdrawal prior to 2020 is the last remaining significant issue that the PBGC must still work through.

U.S. Treasury yields have risen sharply since the beginning of the Iran conflict. As challenging as that development is on existing bond funds, the entry point for SFA recipients wanting to use CFM to secure the benefits and expenses is as good as it has been in more than 1-year. As a reminder, higher yields reduce the cost of those future promises.

03.17.26
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What Would You Do?

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

Happy St. Paddy’s Day to my Irish friends (I’m 1/2 Irish) and those that would like to be. May the luck of the Irish embrace you today.

As many of you know, we are always willing to provide to the pension and E&F communities a free analysis to highlight how a Cash Flow Matching (CFM) mandate could secure the promised benefits/grants for your fund and importantly, provide the necessary liquidity to meet future promises. In many cases, we will produce multiple runs covering a variety of periods usually 5-years to 30-years. Often the sponsor of the fund is shocked by the potential cost reduction of those future obligations.

We recently provided a large pension plan with several potential implementations, as they try to improve the fund’s liquidity profile, while also desiring to secure those future promises. Here are three scenarios that we provided to them and I’d welcome your feedback on what you would do.

Scenario #1 – Provide a CFM portfolio using the core fixed income allocation ($3 billion/15% of total assets) to match and fund the NET (after contributions) liability cash flows of benefits and expenses (B&E). In this scenario, we can cover the next 6-years of B&E through 6/30/32, covering $3.44 billion in FV benefits and expenses for $3.0 billion (a cost reduction of $443.3k or 12.88%). The YTM on the portfolio is 4.09 and the duration 3.09 years, with the average quality being A-. The remaining assets can continue to be managed as they currently are, but they now benefit from a 6-year investing horizon in which they are no longer providing any liquidity to meet monthly obligations.

Scenario #2 – Provide a CFM portfolio using the same $3 billion (only needed $2.96 billion) or 15% of the fund’s total assets, but implement the strategy using a vertical slice of the liabilities going out 30-years. In this example, we can cover 22% of the liability cash flows for the next 30-years. The FV of those liabilities are $6.3 billion (as opposed to the $3.44 billion using 100% CFM for 6-years). We can reduce the FV cost by $3.33 billion or 53%. The remaining 85% of the fund’s assets can be managed as they presently are, but they don’t benefit from the longer investing horizon, as they will be called upon to provide liquidity to meet the residual B&E.

Scenario #3 – 100% CFM covering net liabilities through 6/30/59. In this case we showed that we can cover 100% of the NET B&E for $9.9 billion in assets, while providing the plan with a $4.4 billion surplus. The FV of those B&E through 2059 are reduced by about $13 billion or 56%! The surplus assets now have a 33-year investing horizon to just grow and grow! A modest 6.5% annualized return for that period produces a surplus of $34.2 billion that can be used to fund B&E after 2059, enhance benefits, and/or reduce future contributions. An 8% annualized return produces a surplus >$75 billion. Oh, my! Also, in this scenario, the organization ONLY needs an annual 2.56% return on the remaining assets to fully fund ALL projected B&E well beyond 2059, as determined by our Asset Exhaustion Test (AET).

Importantly, these scenarios only work if the sponsoring entity provides the forecasted contributions, which in this case they have consistently done for the past 10+ years.

So, I ask once again, what would you do? Scenario 1 ($3 billion/15% of total assets) provides a 100% coverage for 6-years while reducing cost by 13%. Scenario 2 reduces the cost of FV B&E by 53% or $3.4 billion, but covers only 22% of the liabilities, while Scenario 3 reduces the FV cost by 56%, while securing the net promises through 2059 for a cost of $9.9 billion resulting in a surplus of $4.4 billion.

I guess that there is a fourth scenario which is to do nothing, but why would you want to continue to ride the proverbial performance rollercoaster that only guarantees volatility and not success when you can secure a portion of the liabilities, significantly reduce the cost of those future promises, improve liquidity, and “buy time” for the residual assets to just grow unencumbered?

As the Irish say – “May the most you wish for be the least you get“.

03.16.26
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Unfortunately, the Joke Was On Us!

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

I started raising alarm bells related to DB pension exposure to alternatives – mainly private equity and private credit several years ago, and have produced roughly a dozen blog posts that touch on this issue. You may recall some of the posts from 2024:

The Joke’s On Us!

Good Ideas are Often Overwhelmed!

Kinda Silly Question

Well, unfortunately it appears that it is time to pay the piper! As mentioned in the posts listed above, we as an industry don’t truly appreciate the idea that there is a natural capacity to EVERY investment. As an industry, we DO overwhelm good ideas and those funds that are late to the party are often left with just the crumbs in the chaffing dish.

I stumbled over a good, but scary, list of recent events within private credit. The list was compiled by Ignacio Ramirez Moreno, Host of The Blunt Dollar Podcast:

Cliffwater saw 14% redemption requests.

Morgan Stanley’s fund got 10.9%.

Blackstone hit a record 7.9%.

All three capped withdrawals below what investors requested.

Glendon Capital flagged concerns about Blue Owl’s valuations.

Pimco called it “a crisis of really bad underwriting.”

JPMorgan’s marking down loans and tightening lending to private credit funds.

Partners Group thinks defaults could double.

Pimco’s predicting a “full-blown default cycle.”

Apollo’s saying the pain could last 12-18 months.

Well, that is some list! In addition, I was always quite skeptical of the credit quality that was assigned to these companies, and I guess that I wasn’t too far off given that 43% of private credit borrowers have negative free cash flow. Furthermore, the U.S./Israel vs. Iran war won’t help either, as inflation expectations have ratcheted higher reducing significantly the prospects for Fed action leading to lower rates. In fact, it would not be surprising to see the Fed have to raise rates. If such an action occurs, the higher interest rates could exacerbate the current challenging environment for private debt borrowers and their income statements.

Let’s see how the pension plan sponsor community and their advisors deal with private credit’s first real crisis. It should be both interesting and likely painful.

03.04.26
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Here’s Another Example – Why, Oh Why?

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

In October 2022, I wrote the following: “I believe that we have overcomplicated the management of DB pension plans. If the primary objective is to fund the promised benefits in a cost-efficient manner and with prudent risk, why do we continue to waste so much energy buying complicated products and strategies that often come with ridiculously high fees and little alpha?”

I still believe that our industry continues to build complicated asset allocation structures unnecessarily. In a recent P&I article, the following was reported: that a public pension system will adjust their asset allocation to reflect new targets including a 4% allocation to hedge funds and 3% to opportunistic credit, alongside increases in private equity to 13.5% from 8% and private debt to 8% from 6.5% — funded by reductions in domestic equities, international equities, and infrastructure.

This action is occurring after the investment consultant ABC recommended the changes following an asset-liability study, with the goal of enhancing protection against volatility and drawdowns while maintaining sufficient liquidity. Can you get more complicated? Are they really claiming that this structure will maintain sufficient liquidity? Sure, there may be a reduction in “volatility” because these strategies are not marked-to-market, as opposed to the public markets, but claiming that sufficient liquidity will be maintained is a joke!

I’ve been arguing for quite some time that the private markets are overbought. As assets continue to flow into these strategies, liquidity has dried up with little capital flowing back to the investor, which is why the secondary markets have flourished. Too many assets in any strategy deflate future returns, which we have witnessed. Regarding hedge funds, which are not aligned with the primary objective in managing a DB pension plan which is a relative objective (assets versus pension liabilities and NOT the ROA) they continue to be extremely expensive offerings that have produced subpar returns for the better part of the last two decades.

If the objective is to maintain sufficient liquidity look no further than cash flow matching (CFM) which will ensure that the necessary liquidity to meet benefits and expenses is available each month of the assignment as far out as the allocation goes without a need for a cash sweep of growth assets. Furthermore, one doesn’t have to pay hedge fund fees to get that “liquidity”. You can get a CFM strategy for 15 bps or less. While your liquidity needs are being met, the CFM portfolio will also extend the investing horizon for the remainder of the fund’s assets enhancing the probability that those less liquid, highly opaque offerings have time to produce the forecasted returns.

Afraid that you are going to give up “return” by using a CFM strategy? We recently completed an analysis for a large public pension system that believed they were <50% funded. We proved that we could fully fund and SECURE the NET liabilities (after contributions) of benefits and expenses (B&E) through 2059! Yes, a CFM portfolio with a YTM of 5.4% was able to fully fund the net B&E for 33-years. In addition, we were able to produce a surplus in excess of $4 billion, which can now just grow and grow and grow. In fact, investing that surplus in an S&P 500 index fund would grow those assets at a 6.5% annual return (the fund’s target ROA) to $35.3 billion by 2059. If the index produced an 8% nominal return for that period those surplus assets grow to >$75 billion that can be used to reduce future contributions, meet future liabilities, and perhaps enhance benefits.

Oh, wait, it gets even better. By investing in just the CFM strategy and the S&P 500 index fund, this plan can reduce annual investment fees from nearly $50 million per year to <$4 million, a reduction of 93%. Those fee savings add another $1.5 billion to the surplus before any return is generated on those savings. As Ripley would say, “BELIEVE IT OR NOT”!

Again, the management of a DB plan is not rocket science. Fund the annual required contributions, focus on the primary objective to SECURE the promised benefits at low cost and prudent risk, and you have a program that is neither complicated nor expensive to administer. When will we learn?

03.02.26
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Eliminate the Uncertainty

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

There are many benefits to using Cash Flow Matching (CFM) for your pension plan, endowment or foundation. The obvious benefit is the liquidity that is created to meet ongoing expenditures, whether benefit payments or grants. That liquidity comes at a premium today for many entities that have migrated significant financial resources to alternative investments, which are having a difficult time providing their investors with capital distributions.

The other significant benefit is the certainty that comes from using CFM. I’ve appreciated the opportunity to speak at NCPERS, IFEBP, LATEC, and OPAL in the last few months and in each case, I asked the audience if there was any investment strategy within their fund that brought certainty? Not a single hand was raised. They could have mentioned cash reserves as an example, but that is an expensive long-term strategy because of the low short-term yields available today.

The cloud of uncertainty under which we live is not comfortable! Yes, both pension funds and E&Fs are long-term investors, but the riding of markets up and down often leads to a significant increase in the contributions necessary to maintain their funding. That activity is not helpful to anyone. Who knows what will transpire as our country navigates through several potential geopolitical landmines. Combine that reality with uncertain economic growth, weaker labor markets, sticky inflation, and equity valuations that seem stretched, and markets could be in for a rocky period.

Wouldn’t it be a blessing to have CFM in place that not only provides the necessary liquidity so that assets aren’t forced to be sold at less than opportune times, but a strategy (service) that provides certainty since your obligations (liability cash flows) are matched with asset cash flows of bond principal and interest income for as far out as the bond and cash allocation will provide. It isn’t often that we are presented with an investment strategy that is truly a sleep-well-at-night offering for the long term. 

As a reminder, humans hate uncertainty, as it impacts us in both psychological and physiological ways. Yet, in the management of pensions and E&Fs, sponsors have wholeheartedly embraced uncertainty. The disconnect is quite surprising. Again, I don’t know what will transpire in markets today, tomorrow, or next year. I don’t know how the Iran situation will impact shipping lanes and the price of oil and inflation or worse, destabilize the entire region by bringing into the conflict Iran’s friends, such as Russia and China. I’m not a gambler and I don’t believe that managers of pension assets should be either.

I think it is critically important to SECURE the promises given to your plan’s participants and to achieve that objective with low cost and prudent risk. Riding the asset allocation rollercoaster accomplishes neither objective. Now’s the time to act. Not after markets have been rocked.

03.02.26
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ARPA Update as of February 27, 2026

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

Welcome to March and all the “madness” that comes with it!

Regarding ARPA and the PBGC’s implementation of this critical pension legislation, last week proved to be fairly quiet, and I imagine it will continue to be so, as the PBGC works through the remaining applications currently under review (14) and those that will likely be resubmitted (25). Quiet, unless some action is taken on the 80 plans sitting on the waitlist that were terminated by mass withdrawal prior to 2020.

During the past week there were no applications approved or denied, no pension plans were asked to repay a portion of their SFA and no pension funds asked to be added to the waitlist.

In other news, there was one revised application filed. Bricklayers Local No. 55 Pension Plan, a non-priority group member, is seeking $6.4 million for its 483 members. The PBGC has 120-days to review and approve the application before it is automatically accepted. The only other news of note related to two pension funds that withdrew applications. Non-priority group member, Retail Bakers’ Pension Trust Fund of St. Louis, withdrew its initial application. They’d been seeking $5.7 million for 566 plan members. Warehouse Employees Union Local 169 and Employers Joint Pension Plan, another non-priority group member, withdrew an already revised application in which they were hoping to secure $77.8 million for 3,609 plan participants.

The uncertainty related to action in Iran has U.S. Treasury yields rising across the Treasury yield curve as inflation concerns once again come into focus. Rising rates are challenging for bond investors unless a cash flow matching (CFM) strategy has been used. As a reminder, CFM will secure the promised benefits (and expenses, if desired) for as long as the SFA allocation lasts. As a reminder, those B&E are future values which are not interest rate sensitive. Importantly, higher interest rates will create more cost savings related to those future promises for pension plans still waiting to receive their SFA.

02.25.26
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New Jersey’s Pension System’s “High” Investment Return

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

As a taxpaying resident in New Jersey and a huge supporter of defined benefit plans who has a daughter in the system, I was happy to read that NJ’s pension systems generated strong investment returns in fiscal year 2025, reporting a nearly 11% return. Terrific. Yet, despite the above target return (7.0% ROA), the impact on the system’s funded status was negative. Yes, the funded ratio improved (assets/liabilities), but the funded status further deteriorated (funding gap in $s). Since the system is striving for 7% and the combined funded ratio of the various plans is <50%, a system like NJ’s would need to double the annual return on asset target just to keep the $ deficit stable.

It is great to see that NJ is finally bringing some financial discipline to the management of its pensions, with contributions at least matching the Actuarial Determined Contribution (ADC), but after decades of failing to do so (I think since Washington slept here), the systems are in need of significant funding improvement. Trying to generate outsized gains through a riskier asset allocation is not a long-term winning formula, often leading to greater annually required contributions when markets behave badly and assets get whacked.

The management of DB pension plans is not rocket science if the basics of sound pension management are followed. For instance, plans receiving the full ADC have on average an 80% funded ratio, while those not receiving the full ADC sit with funded ratios <70% (NCPERS study). Plans sitting with funded ratios below 50% are not likely to create enough excess return relative to the annual ROA to be able to close the funding gap. This often leads to plans making difficult decisions such as creating plans with multiple tiers, which I really despise.

Plans should focus on meeting the ADC, securing the promised benefits in the near-term, which buys time for the growth or alpha assets to perform, and reduce costs of administration, including management fees. DB plans are critical to the creation of a dignified retirement. Having a significant percentage of our seniors lacking the financial wherewithal to remain active in our economy is a major problem with long-term implications.

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.