If the Rich Think a Recession Is Coming …

Turns out that rich folks and their high-end financial advisors are uneasy about the economy, so maybe everyone else should fret, too. A new survey of family offices, which run money for the super-wealthy, finds that 55% of these outfits globally expect a recession next year.

The 2019 UBS Global Family Office Report, released this week, indicates that 42% of family offices world-wide are raising cash reserves to buffer themselves against the anticipated downturn. And they have a lot on the line: The UBS survey, done with the help of Campden Research, says these entities world-wide manage an estimated $4.9 trillion, with the average $917 million per office.

North American family offices are the most exposed to risk, with 38% in equities, as opposed to 32% in Europe and 22% in the Asia-Pacific region.

Less-well-off people are growing more leery, as well. The Conference Board, research group announced on Tuesday that its US consumer confidence index dropped to 125.1 in September from 134.2 in August, the biggest dip since January. Perceptions of both the current economy and its prospects diminished markedly. And an ABC/Washington Post poll earlier this month says that 60% of Americans believe a recession will hit next year.

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The weak consumer sentiment reading contributed to a down day on Wall Street, as the S&P 500 lost 0.84%. Anti-China remarks from President Donald Trump and a growing movement in the US House to impeach him didn’t help.

Among the rich set, a real dismay exists about the US-China trade war, the UBS poll shows. In North America, 94% say the trade war will have a major impact on their portfolios, surely not for the better. Almost half (45%) of those surveyed are re-aligning their investment strategies to reduce risk. And close to a fifth (22%) are lowering leverage exposure within their holdings.

“Family offices are cautious about geopolitical tensions,” wrote Rebecca Gooch, Campden’s director of research, “and there is a widespread sense that we’re reaching the end of the current market cycle.”

ESG Interests Are Increasing Among Family Offices

60% of Americans Think a Recession Likely Will Hit in 2020

Tags: Conference Board, Donald Trump, Family Offices, recession, UBS

In a move to tackle unfunded liabilities of approximately $24 billion, the board of trustees of the $87.8 billion Ohio Public Employees Retirement System (OPERS) voted to seek approval from state lawmakers to freeze cost of living adjustments (COLA) in 2022 and 2023 for all retirees. The pension system is also asking to delay COLAs for two years for all new retirees.

OPERS’ funding ratio at the end of 2018 was 78%. The system is already using the full 14% employer contribution rate to fund the pension plan and has run out of options. To make matters worse, the fund lost 3.38% in 2018 as a result of portfolio underperformance.

OPERS also has $2.9 billion in unrealized losses that will be recognized over the next three years, which means that even if the fund earns the assumed rate of return during that time, the realization of these losses will cause the amortization period to exceed the statutorily required 30-year period. Ohio law requires its public pensions to be able to meet 30 years of liabilities at all times.

At last month’s meeting, the board discussed four different packages of COLA reductions that the system said would reduce the pension’s unfunded liability by $3 billion –$4.5 billion depending on which package is implemented.

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The current OPERS COLA varies based on when a participant retired. For those who retired before January 2013, it’s 3%. For those who retired after that the COLA is tied to inflation.