Contributor: David G. Eichhorn, CFA
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Beyond a Crystal Ball: What is Investment Skill?
This article challenges the conventional understanding of investment skill, arguing it extends far beyond market forecasting. Rather than reducing skill to whether a manager has a crystal ball, this piece introduces structuring skill as a comprehensive framework encompassing four distinct competencies. Four Components of Structuring Skill Engineering: Designing strategies that isolate intended market views while…
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Liquid Complements to Private Credit: Epilogue or Post-mortem?
Epilogue or Post-mortem? Even the Golden Age of Private Credit Wasn’t So Golden A Timely Update to Our Three-part Series We stayed true to our word in our first paper of this series and “muster[ed] unusual restraint” by not wading into the debate about whether private credit is standing on the precipice. But we said…
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Liquid Complements to Private Credit: A Three-part Series (Part 3)
Part 3: Mitigating the Cost of Private Credit’s Illiquidity The Role of HY CDX as a Private Credit Proxy Key Takeaways from Parts 1 and 2 In the first two installments of this series, we highlighted a few critical observations: Investor Headache: Managing Private Credit Exposure Beyond fees and expensive leverage, private credit’s illiquidity…
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Liquid Complements to Private Credit: A Three-part Series (Part 2)
Part 2: The Private Credit Premium is Real. The Performance Drag of Leverage? Also, Real. Net Return From Leverage in Private Credit Strategies In our prior paper, we compared private-market indices with comparable credit-quality public-market indices. Importantly, in an effort to present a fair and balanced comparison, we adjusted the returns of the various indices for differences in duration, leverage and pricing conventions (mark-to-market…
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Liquid Complements to Private Credit: A Three-part Series (Part 1)
Part 1: The Private Credit Premium is Real Measuring the Illiquidity Premium Institutional interest in private credit[1] has expanded meaningfully in recent years, driven by the potential to capture an illiquidity premium and access a broader range of issuers than traditional public capital markets alone can provide. And while it is tempting to join the…
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Valuation Shenanigans Haunt Plans in 2023
Funding rules originally intended to provide contribution relief for corporate pension plans are now having the exact opposite impact, leading to tough decisions for many plans.
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Who Reaps the Benefit of Competitive PRT Pricing? A Simple Economic Model
Partial annuity buyout transactions (PRTs) inherently pit two groups of participants against one another – those in the transaction and those remaining within the plan. Fortunately, publicly available bond market data can help measure the potential harm to each group.
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Liquidity Refinements to Potential Economic Loss to Beneficiaries (ELB) in PRTs
This post examines whether our market-based measure, and the resulting Economic Loss to Beneficiaries (ELB), is materially impacted by the size and liquidity of the insurer bond market.
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An Update to the Potential Economic Loss to Participants (ELP) of PRT Transactions
Year-end is often accompanied by an uptick in Pension Risk Transfer (PRT) transactions. Accordingly, we are updating our estimates of the potential ELP associated with commonly used insurers based on current (10/31/22) market pricing. We developed this methodology to aid fiduciaries who are responsible for choosing an insurer as part of PRT transactions. Our ELP…
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Pension Risk Transfers May Be Transferring Risk to Beneficiaries
Economic analysis reveals a 14% range in credit risk costs among nine Pension Risk Transfer (PRT) insurance providers. A pensioner’s benefit is fixed – they are not compensated for bearing the risk of lower quality insurers. With annual PRT transactions of approximately $40b, the disparity puts pensioners at risk of losing as much as $5b…