Posts Tagged ‘retirement’
“We use the term risk all too casually, and the term uncertainty all too rarely”*…
How private-equity giants are overhauling the financial system, and its potential impact on pensions…
A decade or so ago private equity was a niche corner of finance; today it is a vast enterprise in its own right. Having grabbed business and prestige from banks, private-equity firms manage $12trn of assets globally, are worth more than $500bn on America’s stockmarket and have their pick of Wall Street’s top talent. Whereas America’s listed banks are worth little more than they were before the pandemic, its listed private-equity firms are worth about twice as much. The biggest, Blackstone, is more valuable than either Goldman Sachs or Morgan Stanley—and has the confidence of a winner. “It’s the alternatives era,” proclaimed the company’s ebullient Taylor Swift-themed festive video in December. “We buy assets then we make ’em better.”
This is not, though, the business that has recently boomed for them. Traditional private equity—using lots of debt to buy companies, improving them, and selling or listing them—has been lifeless. High interest rates have cast doubt on the value of privately held companies and reduced investors’ willingness to provide new funds. It does not seem to matter. Core private-equity activity is now just one part of the industry’s terrain, which includes infrastructure, property and loans made directly to companies, all under the broad label of “private assets”. Here the empire-building continues. Most recently, as we report this week, the industry is swallowing up life insurers.
All of the three kings of private equity—Apollo, Blackstone and KKR—have bought insurers or taken minority stakes in them in exchange for managing their assets. Smaller firms are following suit. The insurers are not portfolio investments, destined to be sold for a profit. Instead they are prized for their vast balance-sheets, which are a new source of funding.
Judged by the fundamentals, the strategy makes sense. Insurance firms invest over long periods to fund payouts, including annuities sold to pensioners. They have traditionally bought lots of government and corporate bonds that are traded on public markets. Firms like Apollo can instead knowledgeably move their portfolios into the higher-yielding private investments in which they specialise. A higher rate of return should mean a better deal for customers. And because insurers’ liabilities stretch years into the future, the finance they provide is patient. In banking, long-term loans are funded with lots of instantly accessible deposits; with private assets and insurance, the duration of the assets matches the duration of the liabilities.
Yet the strategy brings risks—and not just to the firms. Pension promises matter to society. Implicitly or explicitly, the taxpayer backstops insurance to some degree, and regulators enforce minimum capital requirements so that insurers can withstand losses. Yet judging the safety-buffers of a firm stuffed with illiquid private assets is hard, because its losses are not apparent from movements in financial markets. And in a crisis insurance policyholders may sometimes flee as they seek to get out some of their money even if that entails a financial penalty. Last year an Italian insurer suffered just such a bank-run-like meltdown…
Funding pension providers with private equity: “The risks to global finance from private equity’s insurance binge” (gift article) from @TheEconomist.
And lest we think that publicly-funded defined benefit pensions are less risky, see “Akin to Fraud” by Mary Willliams Walsh, an account of the sorry state of the public pension fund in New Hampshire (the state with the second-oldest population in the nation).
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As we rethink retirement, we might recall that it was on this date in 1728 that John Gay‘s The Beggar’s Opera premiered. A “ballad opera” (a satirical work with lyrics set to vernacular music), it was a huge hit– it has been called “the most popular play of the eighteenth century“– a watershed in Augustan drama.
The original idea of the opera came from Jonathan Swift, who wrote to Alexander Pope in 1716 asking “…what think you, of a Newgate pastoral among the thieves and whores there?” Their friend, Gay, decided that it would be a satire rather than a pastoral opera.
In 1928, Bertolt Brecht (working from a translation into German by Elisabeth Hauptmann) adapted the work into Die Dreigroschenoper (The Threepenny Opera) in 1928, sticking closely to the original plot and characters but with a new libretto, and mostly new music by Kurt Weill.
“These fragments I have shored against my ruins”*…
Hate crime is rising, the Arctic is burning, and the Dow is bobbing like a cork on an angry sea. If the nation seems intolerant, reckless and more than a little cranky, perhaps that’s because the American republic is showing its age. Somewhere along the way, a once-new nation conceived in liberty and dedicated to the proposition that all men are created equal (not men and women; that came later) became a wheezy gerontocracy. Our leaders, our electorate and our hallowed system of government itself are extremely old.
Let me stipulate at the outset that I harbor no prejudice toward the elderly. As a sexagenarian myself, not to mention as POLITICO’s labor policy editor, I’m fully mindful of the scourge of ageism. (I’ve had the misfortune on occasion to experience it firsthand.) But to affirm that America must work harder to include the elderly within its vibrant multicultural quilt is not to say it must be governed almost entirely by duffers. The cause of greater diversity would be advanced, not thwarted, if a few more younger people penetrated the ranks of American voters and American political leaders.
Let’s start with the leaders.
Remember the Soviet Politburo? In the waning years of the Cold War, a frequent criticism of the USSR was that its ruling body was preposterously old and out of touch. Every May Day these geezers would show up on a Moscow reviewing stand, looking stuffed, and fix their rheumy gaze on a procession of jackbooted Red Army troops, missiles and tanks. For Americans, the sight was always good for a horselaugh. In 1982, when Leonid Brezhnev, the last of that generation to hold power for any significant length of time, went to his reward, the median age of a Politburo member was 71. No wonder the Evil Empire was crumbling!
You see where this is going. The U.S. doesn’t have a Politburo, but if you calculate the median age of the president, the speaker of the House, the majority leader of the Senate, and the three Democrats leading in the presidential polls for 2020, the median age is … uh … 77.
It doesn’t stop there. We heard a lot last November about the fresh new blood entering Congress, but when the current session began in January, the average ages of House and Senate members were 58 and 63, respectively. That’s slightly older than the previous Congress (58 and 62), which was already among the oldest in history. The average age in Congress declined through the 1970s but it’s mostly increased since the 1980s…
Timothy Noah (@TimothyNoah1) points out that our leaders, our electorate, and our hallowed system of government itself are aging. And it shows: “America, the Gerontocracy.”
* T. S. Eliot, “The Waste Land”
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As we ponder progression, we might recall that it was on this date in 1796 that George Washington, having decided to decline a run for a third term as president, “delivered” (via a long letter published in the the American Daily Advertiser) his Farewell Address. Characterizing it as advice from a “parting friend,” he celebrated the Constitutional logic of separation of powers and warned against permanent alliances with foreign powers, large public debts, a large military establishment, and “the devices of any small, artful, enterprising minority” to control or change the government– among many other topics. His letter became the foundation of the Federalist Party’s political doctrine, and is considered one of the most important documents in American history.
Starting in 1862, the Farewell Address was read, first in the House of Representatives, then from 1899 in the Senate as well on Washington’s birthday. The House abandoned the practice in 1984, but the Senate continues the tradition. A member of the Senate, alternating between political parties each year since 1896, reads the address aloud on the Senate floor, then upon finishing, makes an entry into a black, leather-bound journal maintained by the Secretary of the Senate .
The Golden Years…
At Chaseley Trust, a British assisted living facility, residents have an alternative to bingo and sing-alongs: Chaseley occasionally employs the services of strippers and escorts for their guests.
“People have needs,” manager Helena Barrow told The Sun. “We are there to help. We respect our residents as individuals so that’s why we help this to happen. If we refused, we would not be delivering a holistic level of care.”
Read more about this hands-on healing (and the controversy it has stirred) in The Sun (from whence, the photo above) and in Salon.
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As we plan for early retirement, we might recall that it was on this date in 1692 that a doctor in Salem, Massachusetts (generally believed to have been William Griggs), was unable to find a physical explanation for the ailments (fits, pins-and-needles) of three young girls. As other young women in Salem began to evince the same symptoms, the local preacher declared them “bewitched”… and the stage was set for The Salem Witch Trials.
“If you’re not a liberal when you’re 25, you have no heart. If you’re not a conservative by the time you’re 35, you have no brain.”*
NPR takes a look at a striking dimension of the generation gap:
A new survey from the Pew Research Center finds wide gaps in how different generations view politics. Older voters are more conservative, more angry at the government and less hopeful about the future of the country. Younger voters lean left, wish the government played a greater role in their lives and believe the nation’s best days are yet to come. If the “silent generation” controlled the country, Mitt Romney would win the election next year. If millennials had their way, President Obama would win a second term — and his health care law would be expanded. Boomers and Gen Xers fall in between these extremes, but seem to grow more conservative with age.
See the full– and fascinating– infographic at “How Age Shapes Political Outlook.”
And for an interestingly (and chillingly) resonant perspective on the stock market, see this report from the Federal Reserve Bank of San Francisco… given the employment prospects– and thus, likely investment activity– of (too) many Millennials, many of those “Silents” and “Boomers” looking to depend on their investments, and get government out of healthcare and retirement, may now have an answer to the question “when can I plan to retire?” Never.
* routinely, but incorrectly, attributed to Winston Churchill– who was, in fact, a Conservative at 15 and a Liberal at 35.
As we muse, with Churchill, that we’re only as old as we feel, we might recall that it was on this date in 1861 that Jefferson Davis was elected to a six-year term as President of the Confederate States of America. In the event, re-election was not an issue.
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