Bloomberg’s Tom Keene is set to sit down with AQR’s Cliff Asness and Vanguard’s Jack Bogle at the Bloomberg Markets Most Influential Summit.
On pensions, Jack Bogle said, “Let’s start with the facts: public pensions are $US4 trillion underfunded and private pensions are $US800-$900 billion short.”
Bogle said that pensions are not going to get the 8% return they assume they are going to get, but 5% is a more reasonable assumption. And this 5% also excludes fees.
Asness is also just as “gloomy” as Bogle on the future of pension funds. Asness on if we can make up the gap in pension plans: “We almost definitely don’t get there.”
On bond rates, Keene asked if the 7% yield that investors got over the last couple decades are a thing of the past, and Bogle said, “They have to be a thing of the past.”
Asness said he doesn’t make GDP forecasts, but because Keene asked, he said, “If I had to guess, because you’re forcing me to, I’d guess 1.5% real, 4% nominal.” So, a bit lower than history might suggest. Asness added that making macro forecasts is a tough way to make a living.
Bogle said that his worst call writing in 1990 that investors could expect returns of 10% over the decade; investors got 17% in 1990s. But since many of those returns were given up after the tech bubble burst, the 10% return call came to fruition over a 13-year period.
The argument for passive management, Bogle said, has “always been true… it’s a tautology.”
On whether the costs of active management are worth it, Asness said, “As Jack said, his maths has never been wrong and never will be wrong.” Asness said, however, that he sees the financial sector as too large, and since there are too many people trying to beat the average, market prices are better.
Bogle said that he expects more and more money to go into the passive, indexing side of the financial industry as passive investing continues to outperform actively managed funds.
Asness said that compensation packages for executives comprised of stock options will skew management to buyback shares rather than payout dividends. Asness said he doesn’t want to make a blanket statement that all buybacks are bad, but some part the buyback behaviour, “worries [him].”
Bogle said that ETFs now are meant to be traded. “Now you can trade the S&P 500 index all-day long, to which I said, ‘What idiot would want to do that?’,” Bogle said.
The interview is taking place under the title, “Investing Principles Across Two Generations,” and is set to address Asness and Bogle’s thoughts on market efficiency, pension problems, and whether or not hedge funds deserve their fees.