Vanguard. It's so simple. Even Buffet says Vanguard.
It's. Not. That. Complicated.
People can't help it, I suppose. They want to feel like they're gaining slightly on others, want their retirement to have some action on it, want to feel smarter. You're not smarter and more informed and - most importantly - you don't have the cold-blooded viciousness that these people have to take money from a 65 year old teacher who struggled her whole life.
The people I really feel sorry for are those that have idiot pension managers that don't just f'ing invest in Vanguard. The pension managers get in trouble the same way, trying to look really smart.
Taibbi's journalism attracting left-wing freaks like myself -- in small disproportion to the hovering finance buzzards -- is why I keep reading (and paying for) his stuff. Moths to the flame!
It feels like the Charlie Munger classic "Show me the incentives and I will show you the outcome." fit well here. Very sad for the people that entrusted their pension money to the pyramid of financialization.
I invest in Allianz. You are not supposed to sell in a sudden market dip, that is made clear to investors. My funds are not only back to where they were, they are higher than they were. They were down something like 35% at one point. I did not sell. I have collected the dividends - the same amount each month, throughout the pandemic.
Betting on the VIX going down just says the market is going to stop panicking, which is exactly what it did, and in rather short order. I am sorry to hear some people sold into the dip but they are advised against that. Allianz is a fine company and I trust them with a significant portion of my portfolio. - I thought Matt understood investing better than the evidence in this article.
Doesn't change the fact that Allianz's investment strategy was stupid and selfish. You should be pissed at Allianz for frittering away your money in an (apparent) effort to protect their paychecks, rather than congratulating them for earning it back. The present and future pensioners whose money was thrown into a pit likewise have every right to be angry -- both at Allianz, and at their pension fund managers.
As I said - if you read my comment - I have made money with Allianz. So why be made at them for "frittering away your (my) money". I haven't lost anything. You do not make any sense. You state your opinion, without evidence, that Allianz's strategy was stupid and selfish. I see no evidence you understand markets. The pension funds sold on a market dip - that was my point - something all financial advisors advise against people invest. I'm sorry the pension funds made mistakes, but it is their fault, and not that of Allianz, who, again, has made money, not lost it, for their investors like me who held.
(Rewrote this comment, since I didn't realize you weren't invested in the Alpha funds. So forget anything I've said previously about Allianz losing your money.)
I agree with your point above that a lot of my condemnation would depend on "when the VIX positions were placed, and the expiry date." The size of the positions as well. All details that I couldn't find during brief Googling yesterday.
Allianz's hedge funds did lose more money than they had a right to! If only temporarily. (That's assuming Taibbi got his facts right; I admit to relying on him as evidence.) I understand that some traders feel that you can't lose money if you never sell your position, but that's a philosophical attitude that ignores the cost of missed opportunity, and not an immutable physical law.
It's fortunate that other Allianz funds did well by you, and I shouldn't have conflated Allianz's entire investment firm with a couple of their hedge funds. But likewise, you shouldn't suggest that the Alpha fund managers are blameless because totally different Allianz funds were well-managed.
The pension fund managers did dumb and reckless things that deserve condemnation—such as trusting hedge funds with pensioners' money, for one. But I'm not at all sure that when a hedge fund loses a chunk of your funds, the Smart Money move is to let them keep the remainder.
If the pension funds didn't quickly reinvest the money they withdrew, then that was a further mistake. (I'm tempted to add "in retrospect" to that statement, but only someone who Doesn't Understand Markets would say such a faithless thing.)
Agreed - pension fund managers probably chose a fund with too much potential volatility, i.e. "beta". Do not know that Allianz is at fault if they did. Agreed Alpha fund managers may or may not be "blameless" but I felt the point of the article was that Allianz itself is "bad". I know, the "buck stops" with the CEO, but he can't know every act of every manager.
I do not know why you said "Allianz hedge funds lost more money than they had a right to. I realize there are things like the Madoff hedge fund, but I don't think this was a scheme, nor did you imply that. So wouldn't the amount the fund went up and down by depend on the stated beta in the prospectus? I still do not know how these Alpha funds are doing now - would have been nice for Matt to provide the symbol or tell us. Its really very material to the point of the story, I think. I see it as plausible the hedge fund managers were in the wrong, but I see it as plausible that all wrong was on the part of the pension fund managers - And of course I see it could have been a combination of wrong on both sides.
It's not stupid if it works. Everyone lost money last March. Only the foolish pulled out. Are the fund managers not liable for withdrawing early? They are also getting paid to be financially literate. Even when they are not. The only ones that might win a law suit are the carpenters union in the Alpha 1000 that closed shop. Also, to clarify, my pension was not invested in this. It is invested in other crap in which it lost and reduced pensions by 25% I dont blame the tools, I blame the carpenter.
But it didn't work, relative to other possible investments. It lost gobs of money. I think this is the Alpha 250, and you'd have been better off burying the money in the backyard from March til November:
Why on Earth shouldn't you blame the "tools"? Bad analogy, I think. Hedge fund managers aren't unwitting risk-taking devices; they're grown men and women who are morally responsible when they make pensioners' money evaporate. Even moreso if they were driven by a keep-earning-fees-or-liquidate strategy rather than investing in pensioners' best interest.
Not that the idiotic/corrupt pension managers don't deserve a shoutout in the headline as well.
Linda said she continued to receive consistent dividends. You are comparing this fund to the 500 top US companies. They made a ton. Everyone else in the world did not. Like the guy below said, invest in VUN. In the end it wasn't the worst investment in the world and the unions would have continued to receive dividend cheques instead of underwriting a massive loss.
Allianz is likely sludge. I just assume that anyone selling financial products is.
Unions are seen as symbols of hope. I think think that makes there conduct at least equally questionable, if not more vomit inducing.
How much more return on investment would they have given you had they not made these irresponsible bets? That is, if you even have your investment in one of the Alpha funds listed. Your money could very well be in a different fund entirely than those that are at the center of this topic.
My point is these were not "irresponsible bets" as far as I can see. Their funds are doing fine now, though they were down in the pandemic with everyone else.
Critically, the article does not tell us how much the pension funds would have now if they had held instead of selling during a market low. The lack of that information is concerning. I don't have the symbols for the specific funds the pensions were in , but it should be possible to find out.
As I understand it, some funds were "closed" but those were different from those the pension were in , and it scared them. I did not see a mention that investors in the closed funds lost when those funds were closed - I think Matt would have mentioned it if investors in the closed funds lost money but maybe I am wrong (I mean average investors...obviously what you make depends on where you bought and where you entered and exited the fund). I think it is the fault of the pension funds if they got scared because some funds closed during a market low.
This is a valid point. In the 25 years I have been employed, my UFCW pension has been pilfered down twice through union corruption/mismanagement. I am an avid investor and was stunned to find that the fund underperformed at virtually every benchmark. That might be statistically impossible, but maybe... Linda is right. You don't withdraw low. The pension fund did. Taibbi admits that the fund "expected" not to make fees this year, but according to Linda the remaining Alphas have performed quite well and the fees probably would have been earned. Sound like the union made an error and is trying to recoup their losses/defer blame because they look incompetent because they probably are. Unions are wallstreet not mainstreet. Sorry folks.
Thank you! I am actually not in their Alpha funds, but I have made money in the two funds at Allianz I do hold since the pandemic.
Allianz is a reputable company, used a reasonable strategy (the VIX would recover) and pension funds should not sell low when there is a market dip.
I'm really glad I did not sell my Allianz positions when they were down over 30 percent, since they are now up at least 3 percent from their value right before the pandemic, and up much more than that for 2020.
I needed detail in the article on when the VIX positions were placed, and the expiry date. It is possible to place an unreasonable VIX bet of course, , but with the only detail being that Allianz bet the VIX would go down - well that is both reasonable (fear will go down) and what happened - it did go down and we did have a V shaped recovery.
If someone hires a man to kill you, then by all means, feel free to blame him when you get shot. But don't give the hitman a pass -- he's morally culpable for his actions too.
To my recollection, Alberta Investment Management who manages pension funds for most Alberta government employees and probably a lot of the oil worker retirement funds, made a similar short bet on VIX.
They lost something in the range of billions, at least at the time it was being reported on in April. Don't know if that's been reduced as the market recovered or what.
Allianz had the right idea. Bad timing. The biggest problem is not their idea but going in big. This made it a "big win big lose" situation something pension funds should never do
Dumb to call them villians. No one has to invest their pension funds, they choose to, and they choose to at risk. It's a greater villainy to exploit political power on municipalities that result in padded civil employee union pensions that bankrupt them. Or, in the case of the Minneapolis police, protect them from proper discipline and thus from cultural change.
Meaning the pension managers choose, of course. I'd also be really surprised if any pension was so concentrated in Allianz that they lost money during the pandemic. That would be foolish and most are probably doing great because the market in general is very good. Any evidence of major losses due to over concentration at all?
hedge funds are generally terrible investments. I've invested in both hedge funds and pe funds, and at least with pe funds you can get a decent return even after the egregious fees. Even in good years, hedge funds struggle to beat the stock market, and as per this article every once in a while you face a supposed black swan event and suffer huge losses. Just a small quibble with the article, I don't think the flood insurance before a hurricane analogy works. I'm too lazy to do my own research but the analogy states it's like selling flood insurance just before the hurricane hits. But the story says that Allianz was betting on declining volatility at the peak of the crisis. Obviously they didn't really do that because they would have made a fortune as volatility did come crashing down as quickly as it rose the previous month. So my guess is they jumped the gun by a week or two, bet on declining volatility while it still had a ways to go, but well after it had already risen dramatically.
Vanguard. It's so simple. Even Buffet says Vanguard.
It's. Not. That. Complicated.
People can't help it, I suppose. They want to feel like they're gaining slightly on others, want their retirement to have some action on it, want to feel smarter. You're not smarter and more informed and - most importantly - you don't have the cold-blooded viciousness that these people have to take money from a 65 year old teacher who struggled her whole life.
The people I really feel sorry for are those that have idiot pension managers that don't just f'ing invest in Vanguard. The pension managers get in trouble the same way, trying to look really smart.
Taibbi's journalism attracting left-wing freaks like myself -- in small disproportion to the hovering finance buzzards -- is why I keep reading (and paying for) his stuff. Moths to the flame!
It feels like the Charlie Munger classic "Show me the incentives and I will show you the outcome." fit well here. Very sad for the people that entrusted their pension money to the pyramid of financialization.
The vultures at Allianz also voided out their travel insurance policies during march to avoid paying claims due to covid travel interruptions.
Just saying this is exactly why I subscribed to MT. You don’t really get a laser eye on financial corruption anywhere else.
I invest in Allianz. You are not supposed to sell in a sudden market dip, that is made clear to investors. My funds are not only back to where they were, they are higher than they were. They were down something like 35% at one point. I did not sell. I have collected the dividends - the same amount each month, throughout the pandemic.
Betting on the VIX going down just says the market is going to stop panicking, which is exactly what it did, and in rather short order. I am sorry to hear some people sold into the dip but they are advised against that. Allianz is a fine company and I trust them with a significant portion of my portfolio. - I thought Matt understood investing better than the evidence in this article.
Doesn't change the fact that Allianz's investment strategy was stupid and selfish. You should be pissed at Allianz for frittering away your money in an (apparent) effort to protect their paychecks, rather than congratulating them for earning it back. The present and future pensioners whose money was thrown into a pit likewise have every right to be angry -- both at Allianz, and at their pension fund managers.
As I said - if you read my comment - I have made money with Allianz. So why be made at them for "frittering away your (my) money". I haven't lost anything. You do not make any sense. You state your opinion, without evidence, that Allianz's strategy was stupid and selfish. I see no evidence you understand markets. The pension funds sold on a market dip - that was my point - something all financial advisors advise against people invest. I'm sorry the pension funds made mistakes, but it is their fault, and not that of Allianz, who, again, has made money, not lost it, for their investors like me who held.
(Rewrote this comment, since I didn't realize you weren't invested in the Alpha funds. So forget anything I've said previously about Allianz losing your money.)
I agree with your point above that a lot of my condemnation would depend on "when the VIX positions were placed, and the expiry date." The size of the positions as well. All details that I couldn't find during brief Googling yesterday.
Allianz's hedge funds did lose more money than they had a right to! If only temporarily. (That's assuming Taibbi got his facts right; I admit to relying on him as evidence.) I understand that some traders feel that you can't lose money if you never sell your position, but that's a philosophical attitude that ignores the cost of missed opportunity, and not an immutable physical law.
It's fortunate that other Allianz funds did well by you, and I shouldn't have conflated Allianz's entire investment firm with a couple of their hedge funds. But likewise, you shouldn't suggest that the Alpha fund managers are blameless because totally different Allianz funds were well-managed.
The pension fund managers did dumb and reckless things that deserve condemnation—such as trusting hedge funds with pensioners' money, for one. But I'm not at all sure that when a hedge fund loses a chunk of your funds, the Smart Money move is to let them keep the remainder.
If the pension funds didn't quickly reinvest the money they withdrew, then that was a further mistake. (I'm tempted to add "in retrospect" to that statement, but only someone who Doesn't Understand Markets would say such a faithless thing.)
Agreed - pension fund managers probably chose a fund with too much potential volatility, i.e. "beta". Do not know that Allianz is at fault if they did. Agreed Alpha fund managers may or may not be "blameless" but I felt the point of the article was that Allianz itself is "bad". I know, the "buck stops" with the CEO, but he can't know every act of every manager.
I do not know why you said "Allianz hedge funds lost more money than they had a right to. I realize there are things like the Madoff hedge fund, but I don't think this was a scheme, nor did you imply that. So wouldn't the amount the fund went up and down by depend on the stated beta in the prospectus? I still do not know how these Alpha funds are doing now - would have been nice for Matt to provide the symbol or tell us. Its really very material to the point of the story, I think. I see it as plausible the hedge fund managers were in the wrong, but I see it as plausible that all wrong was on the part of the pension fund managers - And of course I see it could have been a combination of wrong on both sides.
It's not stupid if it works. Everyone lost money last March. Only the foolish pulled out. Are the fund managers not liable for withdrawing early? They are also getting paid to be financially literate. Even when they are not. The only ones that might win a law suit are the carpenters union in the Alpha 1000 that closed shop. Also, to clarify, my pension was not invested in this. It is invested in other crap in which it lost and reduced pensions by 25% I dont blame the tools, I blame the carpenter.
But it didn't work, relative to other possible investments. It lost gobs of money. I think this is the Alpha 250, and you'd have been better off burying the money in the backyard from March til November:
https://markets.ft.com/data/funds/tearsheet/summary?s=lu1645744589:usd
Why on Earth shouldn't you blame the "tools"? Bad analogy, I think. Hedge fund managers aren't unwitting risk-taking devices; they're grown men and women who are morally responsible when they make pensioners' money evaporate. Even moreso if they were driven by a keep-earning-fees-or-liquidate strategy rather than investing in pensioners' best interest.
Not that the idiotic/corrupt pension managers don't deserve a shoutout in the headline as well.
Linda said she continued to receive consistent dividends. You are comparing this fund to the 500 top US companies. They made a ton. Everyone else in the world did not. Like the guy below said, invest in VUN. In the end it wasn't the worst investment in the world and the unions would have continued to receive dividend cheques instead of underwriting a massive loss.
Allianz is likely sludge. I just assume that anyone selling financial products is.
Unions are seen as symbols of hope. I think think that makes there conduct at least equally questionable, if not more vomit inducing.
Agreed on all counts.
You invested here too.
How much more return on investment would they have given you had they not made these irresponsible bets? That is, if you even have your investment in one of the Alpha funds listed. Your money could very well be in a different fund entirely than those that are at the center of this topic.
My point is these were not "irresponsible bets" as far as I can see. Their funds are doing fine now, though they were down in the pandemic with everyone else.
Critically, the article does not tell us how much the pension funds would have now if they had held instead of selling during a market low. The lack of that information is concerning. I don't have the symbols for the specific funds the pensions were in , but it should be possible to find out.
As I understand it, some funds were "closed" but those were different from those the pension were in , and it scared them. I did not see a mention that investors in the closed funds lost when those funds were closed - I think Matt would have mentioned it if investors in the closed funds lost money but maybe I am wrong (I mean average investors...obviously what you make depends on where you bought and where you entered and exited the fund). I think it is the fault of the pension funds if they got scared because some funds closed during a market low.
This is a valid point. In the 25 years I have been employed, my UFCW pension has been pilfered down twice through union corruption/mismanagement. I am an avid investor and was stunned to find that the fund underperformed at virtually every benchmark. That might be statistically impossible, but maybe... Linda is right. You don't withdraw low. The pension fund did. Taibbi admits that the fund "expected" not to make fees this year, but according to Linda the remaining Alphas have performed quite well and the fees probably would have been earned. Sound like the union made an error and is trying to recoup their losses/defer blame because they look incompetent because they probably are. Unions are wallstreet not mainstreet. Sorry folks.
Thank you! I am actually not in their Alpha funds, but I have made money in the two funds at Allianz I do hold since the pandemic.
Allianz is a reputable company, used a reasonable strategy (the VIX would recover) and pension funds should not sell low when there is a market dip.
I'm really glad I did not sell my Allianz positions when they were down over 30 percent, since they are now up at least 3 percent from their value right before the pandemic, and up much more than that for 2020.
I needed detail in the article on when the VIX positions were placed, and the expiry date. It is possible to place an unreasonable VIX bet of course, , but with the only detail being that Allianz bet the VIX would go down - well that is both reasonable (fear will go down) and what happened - it did go down and we did have a V shaped recovery.
If someone hires a man to kill you, then by all means, feel free to blame him when you get shot. But don't give the hitman a pass -- he's morally culpable for his actions too.
I could never understand the moral argument for letting the hitman off the hook. Capitalism made him do it, I guess.
Great story, Matt. I work in finance and I haven't seen this story written with this detail.
To my recollection, Alberta Investment Management who manages pension funds for most Alberta government employees and probably a lot of the oil worker retirement funds, made a similar short bet on VIX.
They lost something in the range of billions, at least at the time it was being reported on in April. Don't know if that's been reduced as the market recovered or what.
This kind of activity, as well as the oncoming pension crisis, spells financial doom / crash.
Allianz had the right idea. Bad timing. The biggest problem is not their idea but going in big. This made it a "big win big lose" situation something pension funds should never do
I can't figure date this article was written -- please help with dating ! Many thanks
Dumb to call them villians. No one has to invest their pension funds, they choose to, and they choose to at risk. It's a greater villainy to exploit political power on municipalities that result in padded civil employee union pensions that bankrupt them. Or, in the case of the Minneapolis police, protect them from proper discipline and thus from cultural change.
Meaning the pension managers choose, of course. I'd also be really surprised if any pension was so concentrated in Allianz that they lost money during the pandemic. That would be foolish and most are probably doing great because the market in general is very good. Any evidence of major losses due to over concentration at all?
hedge funds are generally terrible investments. I've invested in both hedge funds and pe funds, and at least with pe funds you can get a decent return even after the egregious fees. Even in good years, hedge funds struggle to beat the stock market, and as per this article every once in a while you face a supposed black swan event and suffer huge losses. Just a small quibble with the article, I don't think the flood insurance before a hurricane analogy works. I'm too lazy to do my own research but the analogy states it's like selling flood insurance just before the hurricane hits. But the story says that Allianz was betting on declining volatility at the peak of the crisis. Obviously they didn't really do that because they would have made a fortune as volatility did come crashing down as quickly as it rose the previous month. So my guess is they jumped the gun by a week or two, bet on declining volatility while it still had a ways to go, but well after it had already risen dramatically.