Rant time!

The spate of pension return-based news articles-"CalPERS Badly Misses Target as Return Drops to 1%," "Largest Public Pension Earns Dismal Results,"-is largely what is wrong with the pension industry-and with the press that breathlessly covers it.

When explaining to friends why a magazine situated between asset owners and asset managers/servicers works, I often explain it as thus: "They are the largest and most long-term investors on Earth, and they buy a lot of stuff." And that's true-but to read the Breaking News alerts spewing forth from our competitors in recent weeks, you'd think that it was vitally important that the public plans now reporting their annual returns meet that 7.5%-8% bogey every year, without variation.

I can only imagine the pressure on a CIO and his or her team as they see these emails in their inbox. They know, on many levels, that this does not matter to any significant degree, because they are not constructing portfolios on a one-year basis. The problem is, the press knows it too-yet they continue to write such stories. This is not just navel gazing on my part: Boards, oftentimes composed of members more susceptible to external pressure, read these emails too, and oftentimes feel the need to at least make a show of acting-and any action based purely on one-year returns has no place in pension management. (This argument applies equally when these firms ride rising markets to 20%+ annual returns, as in past years.)

I said something related in an editor's letter awhile back in relation to endowments and foundations. In our Summer 2011 issue, I wrote in my Editor's Letter:

I have yet to speak to an endowment chief investment officer who thinks the Commonfund/NACUBO rankings are a good idea. The most common refrain is that the school daily, hungry for news, easily latches onto how the fund did against its natural rival. A good investment year garners positive reviews and pride, a bad review, the opposite. Lost in the noise is the idea that a year's worth of investment returns signals little in this game. Short-term performance is hardly the most important metric, and it speaks volumes about the industry that almost all endowment and corporate boards-the latter now refocused post-crisis on their liabilities and not peer returns-view their performance at least through a medium-term lens.  

Until this scourge of short-termism is erased from the intelligent press covering pensions and endowments/foundations-and from the minds of those who view short-term returns as a way forward (I'm thinking of politicians who, via board seats or other means, can influence pensions)-we will continue to see subpar results over the long-term. For what CIO can design an asset allocation for 30 years when the press-and, perhaps, a small part of themselves and their boards-are concerned about one year? Who can choose managers, construct a portfolio, and manage risk over 30 years when judged by one? Combine this with subpar governance structures that open pension managers up to uneducated board members and political influence, and it is possible to pinpoint a larger source of concern for what is a tremendously important industry.

Except in rare circumstances-when someone is SO outside the norm that they deserve an examination of why-we will try our best NOT to cover this. If we do, hold us accountable-probably by waving this rant in my face.

Rant done! 

PS. Well isn't this just a PERFECT idea. Will TOTALLY solve the problem…oh wait.

From P&I: California state legislators want a formalized process to have more say in CalPERS' investment decisions and want to know about the $229.8 billion pension fund's investment projects in their districts.