wheras bankers don't get fired - they just expect the public to pay. Hence I expect this is just a "cheap" proxy for outright equity exposure" They just get fired if they blow the fund up so arguably they will be too conservative. there are no bonuses for outperformance, they get the same remuneration regardless. "Remember the trustees do not get the same incentives that bankers do i.e. Sychronosation of failure I call that, that's why "we're all in this together" - and not the reason Georgey porgey claims we are. "Most pension fund trustees are extremely conservative precisely because of the risk of liability if they move away from the pack and it goes wrong."
#Massive mail sack full#
Really? don't know much about futures then, how do you get a position in futures without leverage - pay your margin in full up front? - it kind of defeats the purpose. "I would be worried if it was a levered position but that is highly unlikely." or to leverage? - or hedge? - or maybe just a punt - I mean anything goes with other peoples money doesn't it? "Why they choose to use futures rather than buying outright is probably because they are trying to save money by avoiding paying a manager." Still, I don't give investment advice (or take it) which is why I am prepared for the impending commodity crisis - which isn't happening of course. Not for mine, I have 0% in equities, 0% in bonds and 0% in futures - but I do have a lot of cash at the moment - must be all that QE. That's a fairly standard mix of assets for most pension funds." If 70% of the pension fund is in bonds and cash, then the 30% purchase in equity futures is analogous to 30% equity exposure. I wouldn't necessarily get too worked up about this. Here's the question for him: as Royal Mail prepares for privatisation and for simultaneously putting the bulk of its pension-fund liabilities on to the public sector's balance sheet, should its pension fund be speculating to the tune of £5bn on equity futures? They believe that the potential liability to the group of the derivatives investment going wrong is captured in a general disclaimer in the accounts about uncertainties.īut does the Business Secretary, Vince Cable, know that - in effect - he's the shareholder in a giant hedge fund that happens to be attached to postal service? And they discussed it with their auditors. I understand that Royal Mail's directors were aware of the pension fund's future speculation. "These huge off-balance-sheet side-bets should certainly be disclosed in Royal Mail's own accounts," Ralfe asserts. John Ralfe says that is a worrying omission: the pension fund is a formal liability of Royal Mail, which means that when the fund takes increased risks, so too does Royal Mail.
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Here's what will trouble some: there's no mention of the futures investment in Royal Mail's own annual report and accounts. But it's reasonable to assume it was positive. The precise contribution of the futures bets on shares to this return is unclear. The return on all the fund's assets (not just derivatives) in 2009-10 was 29%, which more than made up for the previous year's losses and was superior to the performance of many pension funds. And, of course, it's fabulous that it seems to have paid off. Some would say that was a big wager on shares. The fund's annual report (as opposed to Royal Mail's) describes this investment in equity futures as a "return-seeking overlay".Īnd it says that this return-seeking overlay rose from being equivalent to 10.5% of assets to 20.1%. Now the pension fund will argue that it has used futures as an efficient way of investing in equities.Īnd if the equities futures are ignored, the fund has a conservative investment strategy, with 71.5% of assets in bonds or cash.īut the futures bets shouldn't be ignored. The accounts of the Royal Mail Pension Fund show that it had £5.13bn of "economic exposure" to UK and overseas shares via futures contracts as of 31 March this year.
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He has spotted that Royal Mail's vast pension fund took a massive punt on shares via the derivatives market last year. So much.Or at least that's what the pension-fund expert John Ralfe argues.
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So far there have been 15 Mail sacks, all of which are listed here.