…everything meaning private equity, private debt and private credit. Private here means not traded on public securities exchanges like the NYSE, NASDAQ, COMEX or their equivalents anywhere else in the world.
The US pension law ERISA, the Employee Retirement Income Security Act of 1974, which applies to most of private industry, set standards for how employee pension plans must be run. It requires that they must operate competently, fairly and transparently–with full disclosure of benefits, costs and funding.
Whether well-foreseen or not, ERISA had gigantic economic impacts.
—suddenly, a career on Wall Street, formerly the refuge of D and below students, became an aspirational goal
—demand for professional corporate money managers, with their cadres of securities analysts, exploded
—a massive switch from defined benefit pension plans to defined contribution began (defined benefit = company promises a specified payment, typically a percentage of salary, adjusted annually for inflation, to the employee, starting at retirement and continuing until death; defined contribution = the company makes periodic payments to a pension account, where the employee chooses the general portfolio construction and withdraws money, subject to legal minimums, on retirement.
By and large, however, government entities retained the traditional defined benefit pension plan structure. I’m not sure why, other than it gave lawmakers continuing control over all payments into their pension plans. And maybe–I’m not sure why–the hope was to find superior managers whose prowess would mean less need to add funds to the pension pool.
more tomorrow