Barton Waring and Pension Finance

Barton Waring (1950-2019) was a prominent figure in the field of investment management, known particularly for his expertise in pension finance and asset allocation. His work significantly impacted how pension funds and other institutional investors manage their assets and liabilities, emphasizing a rigorous, analytical approach over conventional wisdom.

One of Waring’s key contributions was his focus on the integration of asset and liability management (ALM) within pension plans. He argued that pension fund investment strategies should not solely focus on maximizing returns in isolation, but instead should be strategically aligned with the specific liabilities (future pension payments) that the plan is obligated to pay. This requires a deep understanding of the plan’s demographics, benefit structure, and funding status.

Waring emphasized the importance of understanding and managing various types of risk in pension plans. This includes not only market risk (the risk of losses due to market fluctuations) but also interest rate risk (the risk that changes in interest rates will impact the present value of liabilities), inflation risk (the risk that inflation will erode the purchasing power of future benefits), and longevity risk (the risk that plan participants will live longer than expected, increasing future benefit obligations).

His work advocated for a more holistic view of risk management. He suggested that pension plans should develop a comprehensive framework for identifying, measuring, and managing these risks in a coordinated fashion. This includes utilizing sophisticated modeling techniques to project future cash flows, assess the sensitivity of assets and liabilities to different economic scenarios, and design investment strategies that are robust across a range of possible outcomes.

Waring was a strong proponent of factor-based investing. He believed that pension plans could improve their risk-adjusted returns by systematically allocating to factors such as value, momentum, quality, and low volatility. These factors have historically been shown to generate excess returns over the long term. He encouraged pension funds to carefully analyze the risks and rewards associated with different factor exposures, and to build diversified portfolios that capture these factors in a cost-effective manner.

Furthermore, Waring was a critical thinker who challenged prevailing investment trends. He often questioned the assumptions underlying traditional portfolio construction methods and encouraged investors to think independently and to develop their own informed opinions. He cautioned against blindly following market fads or relying on simplistic heuristics.

Through his research, writings, and consulting work, Barton Waring helped shape the modern practice of pension finance. His emphasis on integrating asset and liability management, managing multiple dimensions of risk, utilizing factor-based investing, and thinking critically about investment decisions has had a lasting impact on the industry and continues to influence how pension funds are managed today. His legacy serves as a reminder of the importance of analytical rigor, strategic thinking, and a long-term perspective in the pursuit of achieving pension fund goals.