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To the frigid hinterland of Chicago I ventured in early January for a five-day executive education program at Medill, Northwestern’s vaunted School of Journalism. The intensive course—taken alongside other business-to-business magazine publishers and editors, mostly (oddly enough) from the farming sector—covered a canyon of topics: social media, business exit strategies, integrated selling, and branding. Every small topic, however, fed into one large one: How to survive in a seemingly shrinking and troubled industry.
The discussions at Medill were reminiscent of the defined benefit world. Ever since aiCIO founder Charlie Ruffel and a select few others accurately predicted in the mid-1990s that “defined contribution” was the future, lesser prognosticators have been dismissing these gargantuan pools of capital. “They’re done,” they’d say. “Why pay attention?” How wrong they were, and are.
For the same reason that magazines and media still matter—you’re reading this letter, aren’t you?—defined benefit still matters. Forty years from now, people will be consuming financial journalism; at the same time, there will still be trillions of dollars in defined benefit capital invested in the markets, and thus moving them.
The problem is that neither industry is great at adapting. One needs only to look at the graveyard of magazines—the likes of Condé Nast’s Portfolio and Global Pensions in the ground and Time and Forbes near burial—to see just how poorly media companies did at adopting new models of delivery and financial reality. Similarly, the “perfect storm” of 2008—which, as is clear to pretty much anyone who thinks about it, was not a perfect storm at all but an all-to-common occurrence—showed the failure of defined benefit pension adaption. If loss of capital is the fundamental risk for a pension plan, the vast majority of pension plans utterly failed to understand and adapt to new asset allocation models (think liability-driven investing), risk management systems (think dynamic asset allocation), and governance models (think Canadian and Dutch pension and endowment structures).
So how do both magazine editors and defined benefit chief investment and executive officers go from A to B, from old models to new? If I had the silver bullet, I might be teaching at Medill rather than taking courses (or maybe not), but here is my root solution: take risks. Not risks in the vein of blindly upping equity exposure or piling billions into illiquid alternatives, but risks along the lines of exploring new models, of testing the assumptions of ideas such as wider bands on asset allocation, risk parity, and tail hedging. Because, let’s admit it, we’re both in troubled industries and we won’t all survive. But some will. And it’s my bet that those that do will be the ones taking intelligent risks and pushing the boundaries of what our peers—be they in journalism school or your national pension organization—deem normal.