Ronald Ryan, president of US-based Ryan Labs Asset Management, believes that pension fund liabilities are the biggest problem in the world today.
Ryan, speaking at the IMN Corporate Pension Funds Summit in Palm Springs, said that the way actuaries calculate pension fund liabilities has become so distorted that many funds may incorrectly think that they actually have a surplus.
According to Ryan, the standard belief amongst actuaries that liabilities will be outstripped by assets is unrealistic. As an example, Ryan quoted research from the Cato Institute, which claimed that US Social Security has a $21trn liability, if high quality zero coupon bonds are used.
Ryan also criticised pension funds and asset managers’ reliance on indices: The goal is to fund your liabilities with assets; ideally you want to stop paying contributions. An investment beating the benchmark tells you nothing. Indices do not represent liabilities, just the market.
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