Tag Archives: ryanalm

11.22.24
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And So It Is!

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Milliman has released the results for its Public Pension Funding Index (PPFI), which analyzes data from the nation’s 100 largest public defined benefit plans. They are reporting that the collective funded ratio deteriorated during the last month from 82.8% as of September 30th, to 81.2% as of October 31st, as the combined investments of these plans fell for the first time since April. The estimated return for the PFFI was -1.6%, as losses ranged from -2.9% to -0.6%. The $s lost were roughly $80 billion during the month. The funding deficit now stands at about $1.1 trillion.

You may recall that on November 8th, I produced a blog post titled, “Another Inconsistency”, in which I wrote about Milliman’s reporting of its corporate index that highlighted the fact that the collective funded ratio improved during the month despite asset losses due to the fact that liabilities fell to a great extent as interest rates rose.

I also wrote the following, “what do you think will happen in public fund land? Well, given weak markets, asset levels for Milliman’s public fund index will likely fall” (they did, as reported above). “Given that the discount rate for public pension systems is the ROA, there will be no change in the present value of public pension plans’ future benefit obligations (silly). As a result, instead of witnessing an improvement in the collective funded status of public pensions, we will witness a deterioration.” (and we did!) The inconsistency is startling!

Decisions with regards to benefits and contributions are made all the time based on information related to the funded ratio/status of these pension plans. Using different accounting standards clearly produces different outcomes that might just lead to inappropriate conclusions and the subsequent decisions. Oh, boy!

02.29.24
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Willingness and Ability to Customize

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Coalition Greenwich, a division of CRISIL, has released a report on the top trends in asset management for 2024. Among the categories discussed was the establishment of “Strategic Partnerships” among one’s clients. There were four categories in which 499 respondents to the survey were asked to rate from most influential when hiring an investment management organization to least influential. The categories included willingness to provide customization, fees, commitment to knowledge transfer, and finally brand recognition.

Not surprising, the willingness to provide customization achieved the top ranking in importance, with 72% indicating that it was either the most or very influential in the decision to bring on a manager and that product. We often read about a manager’s willingness to customize a solution, but what does that mean in reality? Ironically, Ron Ryan produced, just today, an article on the importance of creating custom liability indexes for LDI assignments. This was written primarily in response to a series of LDI-related research pieces that discussed “custom benchmarks” but used generic indexes.

In order to successfully implement an LDI strategy, especially one using Cash Flow Matching (CFM), the benchmark needs to be a custom solution that uses the client’s specific liabilities, as each pension plan has a unique set of liabilities, like snowflakes. The liabilities are future values that need to be priced at some discount rate(s) into present values (market values) similar to the plan’s assets. It is only then that an appropriate LDI strategy can be implemented.

Every client of Ryan ALM, Inc. gets a custom solution. There are no “off the shelf” products. Fees, which received the second highest ranking in importance, had 68% of the respondents rating this category as most or very influential. Despite the highly customized products, we at Ryan ALM, Inc. provide our services at low fees. We believe that the primary objective in managing a defined benefit plan is to SECURE the promised benefits at a reasonable cost and with prudent risk. Everything that we do as an investment firm is focused on that belief. Custom solutions and low fees – that doesn’t seem like the norm in our industry. We are proud to be different!