index funds

A suburban Philadelphia pension fund drove a dozen miles to have Vanguard’s Jack Bogle tell them to invest in index funds. One imagines that Googling “Jack Bogle” would have had the same effect.

Then again, maybe the statue convinced them to give almost all of their money to Jack Bogle. Read more »

  • 26 Mar 2013 at 3:07 PM

Don’t Do It, CalPERS!

What is CalPERS’s job? There’s actually an answer: it’s to “Provide responsible and efficient stewardship of the System to deliver promised retirement and health benefits, while promoting wellness and retirement security for members and beneficiaries.” I suppose “the System” is defined somewhere, and blah blah blah health benefits and wellness and beneficiaries, but I prefer to stop at the capitalized abstraction: CalPERS provides responsible and efficient stewardship of the System.

“Responsible” and “efficient” can conflict, though:

The second-largest pension fund in the United States is considering a move to an all-passive portfolio while at the same time, the largest brokerage firms are falling over themselves to push passively managed exchange-traded funds. The California Public Employees’ Retirement System’s investment committee started a review of its investment beliefs last week, with the main focus on its active managers ….

CalPERS oversees about $255 billion in assets, more than half of which already is invested in passive strategies. … “CalPERS investment consultant Allan Emkin told the investment committee that at any given time, around a quarter of external managers will be outperforming their benchmarks, but he said the question is whether those managers that are doing well are canceled out by other managers that are underperforming.”

So: financial markets exist to allocate capital to its most productive uses.1 One use of capital that may not be all that productive is allocating capital, so it’s understandable that rich sophisticated capital-allocators like CalPERS would allocate less capital to the business of allocating capital. Why spend so much money on external active manager fees when they turn out not to be that good at active management? Just index, right? Read more »

Here’s a delightful idea that is also a nice piece of synergy. Apparently Yale economist and half-a-housing-index Robert Shiller has been floating this idea since 2009 but I just saw it today in a new Harvard Business Review piece (via Counterparties):

Corporations use a combination of debt and equity to finance their investments and operations. Nations, in contrast, rely exclusively on debt. When a nation’s economy stalls and its debt continues to grow—you may have noticed this happening a lot recently—disaster looms for the country’s taxpayers. This is why Europe is in turmoil right now. But things don’t have to work this way.

Here’s an audacious alternative: Countries should replace much of their existing national debt with shares of the “earnings” of their economies. This would allow them to better manage their financial obligations and could help prevent future financial crises. It might even lower countries’ borrowing costs in the long run.

The proposal is for something he calls “trills,” which pay a dividend equal to one trillionth of GDP: Read more »

Remember back in December, when it was reported that Bernie Madoff got the shit beat out him, sustaining “facial fractures, broken ribs and a collapsed lung”? At the time, prison officials wouldn’t say the injuries were a result of a brawl in the yard and Berns is no snitch, so he wouldn’t say anything either. Today sources on the inside have confirmed that yes, Ponzi boy’s face was rearranged by a fellow inmate who believed that Madoff owed him money. Here’s what else we know about the attacker. He was a big fella and possibly a bit of a mama’s boy.