Colm Fagan will be on Pat Kenny Newstalk at 11 am this morning.

[Colm Fagan]

A key driver of the uplift in Colm's proposals is the continuous undiluted equity exposure. If you don't have equity exposure to this extent, you don't get the corresponding upside. It's absolutely central to the proposals and it's pretty much impossible to have a reasonable understanding of the proposals without understanding this.

I would qualify your comment. The investment managers will be instructed to do their best for members, given that the investment horizon is around 50 years, with the assurance of positive cash flows for decades and no risk of having to cash investments prematurely.
As a non-investment expert, I conclude that the best investment strategy given that freedom is to invest everything in "equities", by which I mean investments with a high expected return, but which by definition also have a high risk of short-term loss. I would of course look for diversification across industries, geographies, technologies, etc. - with the caveat that I'm no investment expert. However, there may be managers out there who can convince the trustees/ directors (I'm not sure what's the right corporate structure) that they have a good feel for markets and can do better by avoiding equities when prices are elevated and investing in bonds or cash instead as a short-term expedient. I've no objections to that.
Also, if the trustees/ managers aren't completely comfortable with a 100% "equity" strategy, that's OK too. Suppose they opt for (say) 80% equities, 20% bonds, then the expected extra return (on my 4% ERP assumption) is 3.2%. The "committee of eminent economists" who'll be a central part of the governance structure under my updated proposal, (look for the words "eminent economists") will simply factor the intended equity mix into the smoothing formula.
In summary "continuous undiluted equity exposure" is not absolutely key to my proposal, but the smoothing formula is. It ensures a trouble-free voyage for members, before and after retirement, irrespective of the weather.

 

[jasdpace@gmail.]

Hi Colm,

I'm getting really confused here! Honestly, I'm not sure what you are really trying to get at in the above post. Where can I see a copy of the version of your proposal that was evaluated by the Pensions Council and that you were discussing on the PK show? Also, where can I see Colm Fitzgerald's analysis please? I want to make sure I'm looking at the right proposal - the last time I looked I'm pretty sure it was 100% equities. It seems obvious that Brendan and Jimmy missed this change also?

In the interview with PK, you were talking about a 100%+ uplift and referred to Colm Fitzgerald's finding of a 139% uplift. Are you now saying that these figures are not based on 100% equity allocation throughout? If so, what equity allocation were these figures based on pre and post retirement? Honestly, this is becoming very, very unclear.

 

[Colm Fagan]

Where can I see a copy of the version of your proposal that was evaluated by the Pensions Council and that you were discussing on the PK show?

It's on my website here.
That proposal is now two years old. I updated it here in my response to the RFQ last year. I don't know if the Pensions Council referred to that later document. I told them about it but as I mentioned earlier, they refused to engage with me, even to acknowledge my emails, so I don't know if they did look at it.

Also, where can I see Colm Fitzgerald's analysis please?

The summary and conclusions of Colm Fitzgerald's report are on my website here.

I want to make sure I'm looking at the right proposal - the last time I looked I'm pretty sure it was 100% equities. It seems obvious that Brendan and Jimmy missed this change also?

The paper in the first reference above assumed 100% in equities. Note 2 (bottom of page 1) reads:
"The term “equities” is used throughout as shorthand for assets offering equity-like returns and volatility; similarly, “bonds” is shorthand for assets offering bond-like returns and volatility."
I still stick with that belief, but we all learn as we go through life. I have learned that not everyone agrees with my belief that the market is always right. Some believe that it's possible to beat the market by eschewing equities when prices are elevated and piling in when prices are depressed. What I wrote in the post above reflects that learning. If people who know more about investing than I do conclude that a 100% "equity" portfolio (with "equities" defined as above) is not the best strategy for the fund as described (i.e., 50-year investment horizon, assured positive cash flows for decades) then that's their prerogative.
I'm saying that, if they're right, my proposal still works. I believe that the long-term returns will be slightly lower than with a 100% "equity" portfolio, but I don't claim infallibility. I will defer to the "committee of eminent economists".

In the interview with PK, you were talking about a 100%+ uplift and referred to Colm Fitzgerald's finding of a 139% uplift. Are you now saying that these figures are not based on 100% equity allocation throughout? If so, what equity allocation were these figures based on pre and post retirement? Honestly, this is becoming very, very unclear.

If you don't mind me saying so, this is nit-picking. In my original 2021 paper for the Society of Actuaries in Ireland, I claimed "over 100%". Colm Fitzgerald came up with 139% for a 25-year old joiner. I haven't looked at his assumptions. I presume he assumed a 4% ERP, the same as my "core" assumption. I'm now saying (as per the post above) that, if there's 80% in equities, then the uplift is 80% of 4% equals 3.2%. As you know, though, assumptions are just that. As I quoted in another paper, a recent survey of 1,756 US economists came up with an expected future ERP of 5.5%. Using that instead of 4% (or 3.2%) would have produced a higher uplift again.

I hope I've made myself clear.

 

[JimmyB99]

If you don't mind me saying so, this is nit-picking.

I, genuinely, don't think Jasdpace is nit-picking at all.

If Pat Kenny asked you the other day where is the money invested in order to get these 100%+ superior returns, what would you have said on live radio (i.e. in brief)?

 

[Colm Fagan]

I would have said 100% in ‘equities’.
Is that brief enough?

 

[JimmyB99]

And that would be the truth! It follows that the comments made by Jas in his penultimate post are completely valid and accurate.

 

[Colm Fagan]

This feels like the Spanish Inquisition!
I said at the very start that I decided not to correct Pat Kenny when he misunderstood the investment aspect of my proposal. I reckoned, and @Brendan Burgess agreed, that it would bring us down a rabbit hole. You are proving me right on that!!! I won't be sucked down again!

 

[JimmyB99]

You and Brendan think one thing - clearly Jas and myself another. That's 2 all.

Re the misleading comment about auto-enrolees being empowered to join another scheme, it's 3 to 1.......and not in your favour!

And the game is up as far as I'm concerned........i.e. further votes don't count!!

 

[ronaldo]

I would have said 100% in ‘equities’.
Is that brief enough?

Exactly right.

Besides, risk is relative.

My non-pension investments are distributed among high, medium and low risk investments - with high risk being things like pharmaceutical companies, medium risk being high-growth, high P/E companies and low risk including consumer staple companies.

Not exactly a route you want to, or should, go down within a talkshow with an allocated timeslot as you'd never get to all the main, high level, points.

 

[Colm Fagan]

Hi @ronaldo. You make a very good point, which people unfamiliar with investing tend to miss (and by ‘investing’ I mean ‘real’ investing, i.e., buying company shares or bonds rather than units in a unit-linked fund that’s labelled an ‘equity’ or ‘bond’ fund).
One of the criticism I’ve got is that I’m restricting investment to a single asset class, a criticism that completely ignores the heterogeneity there is in that so-called single class.