FYI: (Click On Article Title At Top Of Google Search)
Some pension funds are seeking to profit from others’ fear.
Pension funds in Hawaii and South Carolina are plying an arcane options strategy called cash-secured put writing. In a typical trade, the investor sells a contract, known as a put, to someone who owns stocks and is willing to pay up for protection in case they decline. If, within a certain time, the shares fall below a given price, the investor buys the stocks at that price, or covers their lost value
Regards,
Ted
https://www.google.com/#q=In+Scramble+for+Yield,+Pension+Funds+Will+Try+Almost+Anything+wsj
Comments
A snippet from the below linked article:
“The longer-term returns of the fund -- the three-, five-, 10-, 15- and 20-year total returns of the fund -- are now below the assumed rate of 7.5 percent for the fund,” Eliopoulos said. “That’s a significant policy issue for us.”
The system must average at least 7.5 percent a year to match its assumed rate of return or turn to taxpayers to make up the difference. Calpers’s annualized returns were 6.9 percent for the last three years, 5.1 percent for the last 10 years and 7 percent over 20 years, according to a presentation to the board. It is among U.S. pensions under pressure to boost investment returns as funding shortfalls increase amid an aging population and low interest rates.
In fiscal 2015, Calpers earned 2.4 percent. The pension lost a quarter of its value in 2009. Two years later, it earned a record 20.7 percent, only to see the gain drop to 1 percent the following year. Since the recession, the fund has sought to better gauge its risks from market volatility.
>>>One can especially enjoy this portion:The longer-term returns of the fund -- the three-, five-, 10-, 15- and 20-year total returns of the fund are now below the assumed rate of 7.5 percent
Knowing these folks (pension fund management) are much more educated in finance than most here at MFO; they sure have one heck of a time managing the money some days, eh? 'Course, they could do a 50/50 equity and bond mix; but then they place themselves in jeopardy of being out of a job. No way, eh?
The above circumstance apparently is far reaching to other pension funds too; not even taking under funding into the case.
Pretty scary stuff, IMHO.
http://www.bloomberg.com/news/articles/2016-07-18/calpers-largest-u-s-pension-fund-earned-0-6-last-fiscal-year
I sell naked puts periodically -- I did so during 2008 to great success, and will do so again if/when/as I deem appropriate or opportunistic.
However, a few reactions come to mind:
First ....
“After the great financial crisis, we recognized that there was a lot of risk in our portfolio,” he (HI pension manager) said. “We’ve been in an ongoing effort to address those concerns and understand them.”
Umm. This is 10 years later and you've had plenty of time to analyse things ... are you saying you'd prefer to throw real money into a new investment vehicle BEFORE understanding how it works? That's how many a retail options investor gets into trouble.
Second ....
When you sell puts you hope for a decent premium in exchange for the risk you take for the duration of the option contract you sold. That's just not happening these days, so they're not getting as much 'income' as they probably would want or need. Is why I've not sold puts in a while -- low volatility means puts are cheap and not really worth selling as an income strategy.
Third ....
Selling puts typically implies a bullish position. Here we are, at all-time highs following a crazy "bull" market (quotes used advisedly) so, as with the lead-in to 2008, these clowns are assuming a certain asset class only goes "up."
Fourth ....
This kind of asinine thinking is why I opted against joining the state pension plan. I went with my state-funded 403(b) instead -- if I'm going to make or lose money, *I* want to be the one doing it.
Bottom line: These clowns have learned NOTHING.