AQR’s Asness Says Pensions Will Struggle to Return 7 Percent

September 25, 2013 Leave a comment

AQR’s Asness Says Pensions Will Struggle to Return 7 Percent

AQR Capital Management co-founder Cliff Asness said the average public pension fund will have a “very hard time” achieving average annual returns of 7 percent to 7.5 percent. A portfolio constructed of 60 percent stocks and 40 percent bonds will probably return 2.5 percent above inflation, compared with 5 percent historically, Assness said today at the Bloomberg Markets 50 Summit in New York. Most public pensions assume rates of return between 7 percent and 8 percent. “It’s still going to be hard in a world where markets give you 5 percent to make 7,” said Asness. “For the next 10 through 20 years, I think the average pension fund is going to have a very hard time hitting that bogey.”State public pensions had an $833 billion gap in fiscal 2011 between what they’ve promised retirees and assets, 10 percent wider than the previous year, according to a July report from Standard & Poor’s. Losses from the financial crisis, increased longevity for beneficiaries and a failure by governments to adequately fund retirement plans contributed to the gap.

Both stocks and bonds are overpriced, said Asness, whose Greenwich, Connecticut-based hedge fund oversaw $78.9 billion as of March 31. AQR’s clients include the Teachers’ Retirement System of Illinois and Ohio’s Public Employees Retirement System.

The median U.S. public pension returned 12.4 percent for the fiscal year ending June 30, according to Santa Monica, California-based Wilshire Associates.

New York City chief investment officer Larry Schloss, who oversees $145 billion in assets for the city’s five public pension funds, disagreed with Asness.

New York’s pensions, which returned 12.3 percent for fiscal 2013, benefited by increasing their stock holdings and lowering the allocation to bonds.

“Unconstrained, I think you can make it,” said Schloss. New York has increased its investments in higher-yielding bonds, Schloss said.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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