Tag Archives: liquidity

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.

03.04.26
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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?

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!

12.15.25
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Bond Math and A Steepening Yield Curve – Perfect Together!

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

We are in the midst of a project for a DB pension plan in which we were asked to model a series of liability cash flows (benefits and expenses) using cash flow matching (CFM) to defease and secure those liabilities. The plan sponsor is looking to allocate 40% of the plan’s assets initially to begin to de-risk the fund.

We first approached the assignment by looking to defease 100% of the liabilities as far into the future as that 40% allocation would cover those benefits and expenses. As it turns out, we can defease the next 11-years of projected B&E beginning 1/1/26 and carrying through to 10/31/37. As we’ve written many times in this blog and in other Ryan ALM research (ryanalm.com), we expect to reduce the cost of future liabilities by about 2% per year in this interest rate environment. Well, as it turns out, we can reduce that future cost today by 23.96% today.

Importantly, not only is the liquidity enhanced through this process and the future expenses covered for the next 11-years, we’ve now extended the investing horizon for the remaining assets (alpha assets) that can now just grow unencumbered without needing to tap them for liquidity purposes – a wonderful win/win!

As impressive as that analysis proved to be, we know that bond math is very straightforward: the longer the maturity and the higher the yield, the greater the potential cost savings. Couple this reality with the fact that the U.S. Treasury yield curve has steepened during the last year, and you have the formula for far greater savings/cost reduction. In fact, the spread between 2-year Treasury notes and 30-year bonds has gone from 0.35% to 1.35% today. That extra yield is the gift that keeps on giving.

So, how does one use only 40% of the plan’s assets to take advantage of both bond math and the steepening yield curve when you’ve already told everyone that a full implementation CFM only covers the next 11-years? You do a vertical slice! A what? A vertical slice of the liabilities in which you use 40% of the assets to cover all of the future liabilities. No, you are not providing all of the liquidity necessary to meet monthly benefits and expenses, but you are providing good coverage while extending the defeasement out 30-years. Incredibly, by using this approach, we are able to reduce the future cost of those benefits not by an impressive 24%, but by an amazing 56.1%. In fact, we are reducing the future cost of those pension promises by a greater sum than the amount of assets used in the strategy.

Importantly, this savings or cost reduction is locked-in on day one. Yes, the day that the portfolio is built, that cost savings is created provided that we don’t experience a default. As an FYI, investment-grade corporate bonds have defaulted at a rate of 0.18% or about 2/1,000 bonds for the last 40-years according to S&P.

Can you imagine being able to reduce the cost of your future obligations by that magnitude and with more certainty than through any other strategy currently in your pension plan? What a great gift it is to yourself (sleep-well-at-night) and those plan participants for whom you are responsible. Want to see what a CFM strategy implemented by Ryan ALM can do for you? Just provide us with some basic info (call me at 201/675-8797 to find out what we need) and we’ll provide you with a free analysis. No gimmicks!

12.02.25
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Do the Analysis! Remove the Guess Work.

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

I am truly blessed working for an organization such as Ryan ALM, Inc. I am awed by the folks that I get to work with and the product/strategy that I get to represent. As a reminder, we’ve created a cash flow matching (CFM) strategy that brings an element of certainty to the management of pensions that should be welcomed by pension plan sponsors and their advisors far and wide. What other strategy can inform you on the day that the portfolio is constructed what the performance of that strategy will be for the full-term of the assignment (barring any defaults within investment grade bonds)? Name another strategy that can lay out the liquidity with certainty for each month (chronologically) of that assignment.

Given that liquidity is becoming a challenge as pension plans (mostly public) adopt a more aggressive asset allocation favoring alternative investments, using a CFM strategy that provides ALL the liquidity to meet ongoing benefits and expenses should be a decision that is easily embraced. Yet, our conversations with key decision makers often stall as other parties get involved in the “review”. To this day, I’m not sure what is involved in most of those conversations.

Are they attempting to determine that a traditional core fixed income strategy benchmarked to a generic index such as the BB Aggregate is capable of producing the same outcome? If so, let me tell you that they can’t and it won’t. Any fixed income product that is not managed against your plan’s specific liabilities will not provide the same benefits as CFM. It will be a highly interest rate sensitive product and performance will be driven by changes in interest rates. Do you know where U.S. rates are headed? Furthermore, the liquidity provided by a “core” fixed income strategy is not likely to be sufficient resulting in other investment products needing to be swept of their liquidity (dividends and capital distributions), reducing the potential returns from those strategies.  Such a cash sweep will reduce the ROA of these non-bond investments. Guinness Global’s study of S&P data for the last 85 years has shown that dividends and reinvestment of dividends account for 50% or more of the S&P returns for rolling 10- and 20-year periods dating back to 1940.

Are they trying to determine if the return produced by the CFM mandate will be sufficient to meet the return on asset assumption (ROA)? Could be, but all they need to realize is that the CFM portfolio’s yield will likely be much higher than the YTM of a core fixed income strategy given CFM’s 100% exposure to corporate bonds versus a heavy allocation to lower yielding Treasuries and agencies in an Agg-type portfolio. In this case, the use of a CFM strategy to replace a core fixed income mandate doesn’t impact the overall asset allocation and it certainly doesn’t reduce the fund’s ability to meet the long-term return of the program.

Instead of trying to incorporate all these unknown variables/inputs into the decision, just have Ryan ALM do the analysis. We love to work on projects that help the plan sponsor and their advisors come to sound decisions based on facts. There is no guess work. Importantly, we will construct for FREE multiple CFM portfolios, if necessary, to help frame the decision. Each plan’s liabilities are unique and as such, each CFM portfolio must be built to meet that plan’s unique liability cash flows.

All that is required for us to complete our analysis are the projected liability cash flows of benefits and expenses (contributions, too) as far into the future as possible. The further into the future, the greater the insights that we will create for you. We can use the current allocation to fixed income as the AUM for the analysis or you can choose a different allocation. We will use 100% IG corporates or you can ask us to use either 100% Treasuries/STRIPS or some combination of Treasuries and corporate bonds. We can defease 100% of the plan’s liabilities for a period of time, such as the next 10-years or do a vertical slice of a % of the liabilities, such as 50%, which will allow the CFM program to extend coverage further into the future and benefit from using longer maturity bonds with greater YTMs. Isn’t that exciting!

So, I ask again, why noodle over a bunch of unknowns, when you could have Ryan ALM provide you with a nearly precise evaluation of the benefits of CFM for your pension plan? When you hire other managers in a variety of asset classes, do they provide you with a portfolio up front? One that can give you the return that will be generated over a specific timeframe? No? Not surprised. Oh, and BTW, we provide our investment management services at a significantly lower fee than traditional core fixed income managers and we cap our annual fee once a certain AUM is reached. Stop the guess work. Have us do the work for you. It will make for a much better conversation when considering using CFM. Call me at 201/675-8797 or email me at rkamp@ryanalm.com for your free analysis. I look forward to speaking with you!

11.06.25
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You Don’t Say!

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

Morgan Stanley has published the results from their Taft-Hartley survey, in which they have to provided “insights into how Taft-Hartley plans are managing priorities and navigating challenges to strengthen their plans”. I sincerely appreciate MS’s effort and the output that they published. According to MS, T-H plans have as their top priority (67% of respondents) delivering promised benefits without increasing employer’s contributions. That seems quite appropriate. What doesn’t seem to jive with that statement is the fact that only 29% that improving or maintaining the plan’s funded status was important. Sorry to burst your bubble plan trustees, but you aren’t going to be able to accomplish your top priority without stabilizing the funded status/ratio by getting off the performance rollercoaster.

Interestingly, T-H trustees were concerned about market volatility (84%) and achieving desired investment performance while managing risk (69%). Well, again, traditional asset allocation structures guarantee volatility and NOT success. If you want to deliver promised benefits without increasing contributions, you must adopt a new approach to asset allocation and risk management. Doing the same old, same old won’t work.

I agree that the primary objective in managing a DB plan, T-H, public, or private, is to SECURE the promised benefits at a reasonable cost and with prudent risk. It is not a return game. Adopting a new asset allocation in which the assets are divided among two buckets – liquidity and growth, will ensure that the promises (monthly benefits) are met every month chronologically as far into the future that the assets will cover delivering the promised benefits. However, just adopting this bifurcated asset allocation won’t get you off the rollercoaster of returns and reduce market volatility. One needs to adopt an asset/liability focus in which asset cash flows (bond interest and principal) will be matched against liability cash flows of benefits and expenses.

This approach will significantly reduce the volatility associated with markets as your pension plan’s assets and liabilities will now move in lockstep for that portion of the portfolio. As the funded status improves, you can port more assets from the growth portfolio to the liquidity bucket. It will also buys time for the remaining growth assets to help wade through choppy markets. According to the study, 47% of respondents that had an allocation to alternatives had between 20% and 40%. This allocation clearly impacts the liquidity available to the plan’s sponsor to meet those promises. If allocations remain at these levels, it is imperative to adopt this allocation framework.

Furthermore, given today’s equity valuations and abundant uncertainty surrounding interest rates, inflation, geopolitical risk, etc., having a portion of the pension assets in a risk mitigating strategy is critically important. Thanks, again, to MS for conducting this survey and for bubbling up these concerns.

10.30.25
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Cash Flow Matching: Bringing Certainty to Pension Plans

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

Imagine a world, or at least the United States, where pension plans are no longer subject to market swings and the uncertainty those swings create. What if you could “guarantee” (outside of any corporate bond defaults) the promises made to your plan participants, ensuring their financial security with confidence? In today’s highly unpredictable investing environment, relying solely on the pursuit of investment returns is a risky ride—one that guarantees volatility and sleepless nights but not necessarily success. It’s time to rethink how we manage defined benefit (DB) pension plans and embrace a strategy that brings true certainty: Cash Flow Matching (CFM). Discover through the hypothetical conversation below how CFM can transform your investing approach, protect your plan, and deliver peace of mind for everyone involved. Let’s go!

Why are we talking about Cash Flow Matching (CFM) today?

First off, thanks for taking a few minutes to chat with me. As you may have heard me say before, our mission at Ryan ALM, Inc. is simple — to protect and preserve defined benefit (DB) pension plans and to secure the promises made to participants.

We believe that Cash Flow Matching (CFM) is one of the few strategies that can help us keep those promises with real certainty.

Why Now?

Because the world feels more uncertain than ever.

And if we’re honest, most of us don’t like uncertainty. Yet somehow, in the pension world, many plan sponsors have gotten used to it. Why is that?

Over the years, we’ve been taught that managing a DB plan is all about chasing returns. But that’s not really the case. When a plan invests 100% of its assets purely with a return objective, it locks itself into volatility — not stability or success.

That approach also puts your plan on the “asset allocation rollercoaster,” where markets rise and fall, and contributions swing higher and higher along with them. It’s time to step off that ride — at least for part of your portfolio.

So if it’s not all about returns, what is the real objective?

Managing a DB pension plan is all about cash flows — aligning the cash coming in (from principal and interest on bonds) with the cash going out (for benefits and expenses).

The real goal is to secure those promised benefits at a reasonable cost and with prudent risk. That’s the foundation of a healthy plan.

Does bringing more certainty mean I have to change how I manage the plan?

Yes — but only a little. The adjustments are modest and easy to implement.

How can I adopt a CFM strategy without making major changes?

The first step is to reconfigure your asset allocation. Most DB plans are currently 100% focused on returns. It’s time to split your assets into two clear buckets:

  1. Liquidity bucket – designed to provide cash flow to pay benefits and expenses.
  2. Growth bucket – focused on long-term return potential.

What goes into the liquidity bucket?

Most plans already hold some cash and core fixed income. Those assets can move into the liquidity bucket to fund benefit payments and expenses.

And what happens with the remaining assets?

Nothing changes there. Those assets stay in your growth or alpha bucket. The difference is that you’ll no longer need to sell from that bucket during market downturns, which helps protect your fund from the negative impact of forced selling.

Is that all I need to do to create more certainty?

Not quite. You’ll also want to reconfigure your fixed income exposure.

Instead of holding a generic, interest-rate-sensitive bond portfolio (like one tied to the Bloomberg Aggregate Index), you’ll want a portfolio that matches your plan’s specific liabilities — using both principal and income to accomplish the objective.

That’s where true cash flow matching comes in.

How does the matching process work?

We start by creating a Custom Liability Index (CLI) — a model of your plan’s projected benefit payments, expenses, and contributions. This serves as the roadmap for funding your monthly liquidity needs.

What information do you need to build that index?

Your plan’s actuary provides the projected benefits, expenses, and contributions as far out into the future as possible. The more data we have, the stronger the analysis. From there, we can map out your net monthly liquidity needs after accounting for contributions.

Which bonds do you use to match the cash flows?

We invest primarily in U.S. Treasuries and U.S. investment-grade corporate bonds. We stick with these because they provide dependable cash flows without introducing currency risk.

We limit our selections to bonds rated BBB+ or higher, and the longest maturity we’ll buy matches the length of the mandate. For example, if you ask us to secure 10 years of liabilities, the longest bond we’ll buy will mature in 10 years.

Do you build a laddered bond portfolio?

No — a traditional ladder would be inefficient for this purpose.

Here’s why: the longer the maturity and the higher the yield, the lower the overall cost of funding those future liabilities. So instead of a simple ladder, we use a proprietary optimization process to build the portfolio in a way that maximizes efficiency and minimizes cost.

It sounds manageable — not a big overhaul. Am I missing something?

Not at all. That’s exactly right.

Dividing assets into liquidity and growth buckets and reshaping your bond portfolio into a CFM strategy is typically all that’s required to bring more certainty to part of your plan.

Every plan is unique, of course, so each implementation will reflect its own characteristics. But generally speaking, CFM can reduce the cost of future benefits by about 2% per year — or roughly 20% over a 10-year horizon.

On top of that, it helps stabilize your funded status and contribution requirements.

How much should I allocate to CFM?

A good starting point is your existing cash and bond allocation. That’s the least disruptive way to begin.

Alternatively, you can target a specific time horizon — for example, securing 5, 7, or 10 years of benefits. We’ll run an analysis to show what asset levels are needed to meet those payments, which may be slightly more or less than your current fixed income and cash allocations.

Once implemented, do I just let the liquidity bucket run down?

Most clients choose to rebalance annually to maintain the original maturity profile. That keeps the strategy consistent over time. Of course, the rebalancing schedule can be customized to your plan’s needs and the broader market environment.

This all sounds great — but what does it cost?

In line with our mission to provide stability at a reasonable cost and with prudent risk, our fee is about half the cost of a typical core fixed income mandate.

If you’d like, we can discuss your specific plan details and provide a customized proposal.

Final thoughts

Thank you for taking the time to explore CFM. Many plan sponsors haven’t yet heard much about it, but it’s quickly becoming a preferred approach for those who value stability and peace of mind.

At the end of the day, having a “sleep well at night” strategy benefits everyone — especially your participants.

09.19.25
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Dear Plan Sponsor: Please ask Yourself the Following Questions

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

Do you believe that your pension plan exists to meet (secure) a promise (benefit) that was given to the plan’s participants?

Are you factoring in that benefit promise when it comes to asset allocation?

Do you presently have exposure to core fixed income, and do you know where U.S. interest rates will be in the next day, month, year, 5-years?

Has liquidity to meet benefits and expenses become more challenging with the significant movement to alternatives – real estate, private equity, private debt, infrastructure, etc.?

Do you believe that providing investment strategies more time is prudent?

So, if you believe that securing benefits, driving asset allocation through a liability lens, improving liquidity, eliminating interest rate risk, and buying-time are important goals when managing a defined benefit plan, how are you accomplishing those objectives today?

Cash Flow Matching (CFM) achieves every one of those goals! By strategically matching asset cash flows of interest and principal from investment-grade bonds against the liability cash flows of benefits and expenses, the DB pension plan’s asset allocation becomes liability focused, liquidity is improved from next month as far out as the allocation covers, interest rate risk is mitigated for the CFM portfolio, the investing horizon is extended for the remaining assets improving the odds of a successful outcome, and most importantly, the promises made to your participants are SECURED!

How much should I invest into a CFM program? The allocation to CFM should be a function of the plan’s funded ratio/status, the ability to contribute, and the level of negative cash flow (contributions falling short of benefits and expenses being paid out). Since all pension plans need liquidity, every DB pension plan should have some exposure to CFM, which provides the necessary liquidity each month of the assignment. There is no forced liquidation of assets in markets that might not provide natural liquidity.

Again, please review these questions. If they resonate with you, call me. We’ll provide you with a good understanding of how much risk you can remove from your current structure before the next market crash hits us.