Bloomberg’s recent story on PGIM Chief Executive Officer David Hunt shines a light on an increasingly alarming issue. David Hunt who manages 1.2 trillion dollars explains that the next big financial spark is likely in pensions.
“If you were going to look for what’s the possible real crack in the Financial Architecture for the next crisis, rather than looking in the rearview mirror, Pension Funds would be on our list…”So we’re worried about those pension obligations.”He went on to say on a Friday interview based on his predictions that municipalities and states will face increasing pressure due to low tax revenues and increased unemployment.
Throughout the country, Lawmakers have been struggling with stemming shortfalls in pension funding. According to a report from the Center for Retirement Research at Boston College, U.S public pensions only have 71.8 percent of the assets required to meet current obligations.
Since its inception in January 2012, the long book of the Voss Value Fund, Voss Capital's flagship offering, has substantially outperformed the market. The long/short equity fund has turned every $1 invested into an estimated $13.37. Over the same time frame, every $1 invested in the S&P 500 has become $3.66. Q1 2021 hedge fund Read More
PGIM, owned by Prudential Financial Inc based in Newark, New Jersey, has 147 of the 300 most significant global pension funds among its clients. Hunt explained that pension funds in the corporate sector are performing better than their public counterparts. He continued describing the public pension space as one froth with Politicization where lawmakers set benefit requirements and fund managers are then task to generate enough returns to meet these obligations. He advised that looking for high returns through hedge funds was not the answer. Instead, public pension funds should “start doing what the corporate folks have long been doing, which is to find ways to minimize the deficit and to Take Risk gradually off the table.”
Furthermore, Mr. Hunt opined that he believes that there will be a shift in equities markets as more firms turn to private equity instead of Initial Public Offerings. The number of publicly traded companies in the U.S declined from 8000 in 1996 to about 4300 in 2016, according to Ernst & Young.
This could spell trouble for pensions since retirement accounts may not reap future gains. “More than any other period in our history we’re going to have companies that are owned by private equity rather than the public equity markets,” Hunt said. “The Dynamism and Growth of the Economy are now more and more being captured privately and by institutions rather than available for you to own in your 401(k) account or for other public markets.”