Daily Management Review

Blackstone's Head Predicts Pension Crisis to the US


Limitations in the choice of instruments to invest people’s pension funds is one of the main causes of "hidden crisis" in the United States, as the head of the investment fund Blackstone Group LP Tony James puts it.

- In my opinion, a hidden crisis, about which no one speaks, is arising in the United States. What will happen to all 20-, 30- and 40-year-old people who do not have investments in corporate pension funds with guaranteed payouts? They have 401k (retirement program - Ed.), and they make small contributions, which bring a very, very small income.

In the old days, young Americans along with a job immediately received a guarantee from the employer that they will enjoy a comfortable retirement, which will be provided by the pension defined benefit plan. Professional investment managers manage these plans. And if accumulated funds were not enough to pay off by the time of retirement, the employer compensated the missing difference.

Now, however, the obligation to contribute to the account was given to the workers. On the one hand, quite often the workers themselves are careless and do not make the necessary contributions, on the other - the accumulated funds are invested inefficiently.

According to James, the main reason for this situation - the restriction of investment instruments in which people can direct their pension funds.

- When they retire in the age of 65 years, they will not have enough money to life, and a generation, maybe two will face this situation. As a result, we had no choice but to cry out in horror:" Oh God, what happened? If pension funds cannot invest at a yield higher than the 4-5% that the stock markets can easily demonstrate, we will eventually find our country in trouble.  

Currently all pension schemes (401k, IRA, MyRA) offer a limited selection of investments for employees: stocks, bonds and cash. James also believes that it is necessary to give people the opportunity to invest in hedge funds, futures, commodities (oil, metals) and derivatives.

source: businessinsider.com