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In This Issue

Getting Pensions Ready for Disruption

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November 06, 2019

By Ted Howard

November’s issue of NeuGroup Insights starts with a story that’s more or less a warning to managers of pensions: Be prepared for disruptive times. This is particularly true for those companies that have frozen their pensions. Readers may recall that just a few weeks ago, General Electric announced that it will freeze its US pension plan for about 20,000 employees with salaried benefits and offer pension buyouts to 100,000 former employees. With this move, GE expects to reduce its pension deficit by $5 billion to $8 billion.

However, this doesn’t mean GE can “set it and forget it” as the old Ronco ad suggested. One of the key themes of a recent NeuGroup Pension and Benefit Roundtable was that pension-busting disruption can occur at any time. This is when managers need to hedge their “interregnum risk”—that is, make the fund resilient, or anti-fragile, for troublesome transition times, especially if your fund isn’t taking in more cash.

Lack of prep means funds could go into fire-sale mode, jettisoning good assets along with the bad, without a thought to the longer term (when those departed good assets could help).

“What to do? Part of the answer for pension managers is to focus their investment strategies on achieving specific outcomes rather than focusing on short-term volatility. This can only be done if pensions have a strategy in place to manage their cash flows ahead of time,” writes NeuGroup founder Joseph Neu.

In our Anticipated Exposures stories, we take a look at the credit-default-swap market, which ISDA says has stabilized. That’s because CDS trading volumes have increased and the more trading, more likely spreads will reflect the market’s views on the credit risk of a reference entity. Also in Anticipated Exposures, upheaval in the repo market presents only a moderate risk for corporates, and a short piece on the launch of Goldman Sachs’ Mosaic short-term investment platform.

We also highlight two surveys that show the transition away from Libor is not top of mind for most corporate treasurers. Indeed, if they are thinking about it, it’s to continue to use the benchmark. In terms of the transition, corporates are relying on their banks to do the heavy lifting. The problem is financial services companies aren’t exactly on the ball either. One survey says that while most banks have a plan, they don’t have a “unified and consistent transition and remediation approach.” Another issue: Most bank plan offerings are young and untested. Banks also lack the talent and resources to see transitions through.

This month’s issue features two first-half meeting compilations, one from NeuGroup’s Treasury Investment Managers’ Peer Groups Summit and the other from the Tech20 Treasurers’ Peer Group. At the TIMPG Summit, members discussed investing in ESG funds; reassessing Fed rate cut risks; a guide to managing investment portfolios in-house; and more. At the Tech20, members discussed thinking cash end to end; how maturity or crisis can increase treasury’s value; a bank’s view of capital structure; and more.

Finally, we highlight NeuGroup’s latest Women in NeuGroup (WiNG) event. This time around the confab, at Expedia in Seattle, featured the CFO of Smartsheet, a cloud-based platform for enterprises. Jenny Ceran told women at the meeting to take chances and keep learning as you go.

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