This is a comprehensive look at the crisis of unfunded pension liabilities and what must be done to avoid the same problem in the future. As the generational bubble of the Baby Boomers begins to retire, it is increasingly evident that governments, corporations, and individuals have failed to adequately prepare for the obligations and needs of this giant cohort. Retirees are outliving actuarial life expectancies, pension liabilities are skyrocketing, pension plans are underfunded, and medical costs rise, the United States alone can expect unfunded liabilities to exceed $4 trillion. Even while the American economy shows signs of sustained recovery, states and local governments will still experience sharp increases in pension fund payments through the next year or longer. Global Pension Crisis looks at this situation and offers practical advice for retirement plan managers and financial advisors, while also explaining how to strengthen pensions and prevent similar crises in the future. It offers a clear and comprehensive explanation of the current pension crisis for retirement fund managers, financial advisors, and economists. It includes prescriptive guidance on how to strengthen the pension fund system and prevent another similar crisis. It is written by venture capitalist, entrepreneur, and former senior Wall Street executive Rich Marin.
Preface xi Acknowledgments xiii About the Author xv Chapter 1 Your Worst Nightmare 1 The Family 2 The Work 9 Where Does That Leave You? 15 Chapter 2 Dimensioning the Problem 17 Calculating the Sufficiency of Savings 18 Chapter 3 You Can't Build Your Walls High Enough 43 The Problem of Retirement Income Security 43 Generational Warfare over the "Privilege Gap" 47 Feeding the World 51 Post-Crisis Policy Adjustments 58 The Demographic Monster Stalking Us 61 Chapter 4 Money Matters 63 Enter Modern Portfolio Theory 63 The Search for Alpha 65 The Age of Derivatives 67 The Birth of Hedge Funds 72 Alpha/Beta Separation 73 The Origins of Alpha 75 Static versus Dynamic Assets and Liabilities 75 Summing Up 78 Chapter 5 Reinventing Retirement 81 Defined Benefit Plans 81 Defined Contribution Plans 82 Who's the Client After All? 84 The Changing Landscape 85 The Perfect Storm 87 Chapter 6 Alternatives Are Not Only for the Rich and Famous 93 Pension Assets and the Move Toward Alternative Assets 93 The Great Hedge Fund Debate 95 The Institutionalization of Hedge Funds 103 Chapter 7 The Long and the Short of It ... Trust Me 115 Alpha from Operations 116 Operational Risk 117 Securities Lending History 119 The Securities Lending Market 121 Securities Lending Flow, Process, and Mechanics 124 Ratio Lending 131 The Rehypothecation Two-Step 132 Chapter 8 Liability-Driven Alpha 137 Painting the Recent Pension Landscape 139 Risks 140 Basic LDI Guidelines 142 Chapter 9 Power Tools for Pensions 145 Pension Benefit Guaranty Corporation 146 Factors Affecting the PBGC Insurance Programs 147 Plan Terminations 149 Pension Risk Transfer 150 Synthetic Mutual Fund Notes 161 The Role for Pension Funds 165 The Yale Model (the Illiquidity Premium) versus the All-Weather Model 167 Chapter 10 The Poverty of Nations (Apologies to Adam Smith) 175 Is There a Path to Salvation? 176 The Chilean Terrarium 179 Chapter 11 The Ultimate Solution 187 The Nation, State, Municipality, and Company 187 You as an Individual 191 Chapter 12 A Peaceful Night's Sleep 195 What Our Family Looks Like Now 198 Concluding Thoughts 201 Works Cited 203 Index 209
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