Thrift Savings Plan Discussion

[DanS]

KH: What are the admin fees for CPP?

[DanS]

Many emerging markets are not well developed. You would have the TSP starting to pick winners and losers overseas in order to protect its investors. That's opposite of the ethos surrounding TSP.

I don't see why this would be an issue. A TSP emerging market fund would most likely attempt to track an index, just like the rest of its funds with the exception of the G. I don't see why it would need to start "picking winner and losers".

Those indices are not very well developed. Even the more advanced markets are tough to get into in a balanced and cost-effective manner.

An example might be in order. The index ETF for China that I invest tracks the FTSE Xinhua 25, which comprises 25 mostly Chinese government-owned companies issuing H Shares in Hong Kong. This is not a broad index and therefore would be unsuitable for inclusion in the TSP. However, because of capital controls, foreigners are unable to invest in a broader index tracking A Shares such as the Shanghai Composite.

Because I am willing to accept the fact that the Chinese government is favoring certain companies over others and that there are other risk factors that are little opaque, I invest in the FTSE Xinhua 25 index. But I doubt that the TSP could do similarly.

Further, the index ETF for the Xinhua 25 (FXI) takes a full 74 basis points for management fees.

[KrazyHorse]

Is the consensus here against index funds? I'm heavily into them (~85%) because I like the low administrative fees. My funds range from .55% to .65% in fees (I guess that's 55-65 basis points, but I don't know the lingo like you cool cats do). I figure the managed accounts are just crapshoots anyways, so you're better off limiting the costs than trying to maximize returns.

No, the consensus here is FOR them

[KrazyHorse]

KH: What are the admin fees for CPP?

You misunderstand. It is not a gov't employees retirement fund. It is like SS, but it actually operates for the benefit of contributors. It is defined benefit. The CPP investment board has a given amount of contributions to work with and a given target of benefits to pay out, and its responsibility is to match those with the lowest risk possible.

They have administrative costs, and these appear to run around 30-40 bps on average

Note that these admin costs include benefit administration as well as investment administration

[KrazyHorse]

Those indices are not very well developed. Even the more advanced markets are tough to get into in a balanced and cost-effective manner.

An example might be in order. The index ETF for China that I invest tracks the FTSE Xinhua 25, which comprises 25 mostly Chinese government-owned companies issuing H Shares in Hong Kong. This is not a broad index and therefore would be unsuitable for inclusion in the TSP. However, because of capital controls, foreigners are unable to invest in a broader index tracking A Shares such as the Shanghai Composite.

Because I am willing to accept the fact that the Chinese government is favoring certain companies over others and that there are other risk factors that are little opaque, I invest in the FTSE Xinhua 25 index. But I doubt that the TSP could do similarly.

Further, the index ETF for the Xinhua 25 (FXI) takes a full 74 basis points for management fees.

74 bps is really not that terrible, dan. It's a bit high, but not awful for emerging markets. Why is this a problem? You've decided that it's worth it to get a piece of that pie, so why not allow government employees, WITH THEIR OWN MONEY to do the same?

[DanS]

You misunderstand. These funds are not available in my 401(k) either. FXI is in my Roth IRA and taxable accounts.

Also, obviously 74 bps isn't too bad compared to what others are offering in the market -- that's why I invest in it. But 74 bps is well above the 6 bps normally experienced in the TSP. 74 bps is enough money to fight over, and therefore enough to charge the gov't with favoritism.

[KrazyHorse]

74 bps is enough money to fight over, and therefore enough to charge the gov't with favoritism.

I have no idea what this means. And it wouldn't be 74 bps for a monolithic developing markets fund

[KrazyHorse]

Your objections, frankly, seem retarded, Dan.

[DanS]

74 bps is enough money to fight over, and therefore enough to charge the gov't with favoritism.

I have no idea what this means.

Whose pockets are those 74 bps flowing into? That's a lot of money.

[DanS]

Your objections, frankly, seem retarded, Dan.

[action=DanS]shrugs.[/action]

[KrazyHorse]

Whose pockets are those 74 bps flowing into? That's a lot of money.

74 bps times 140 billion times the percentage of funds going to emerging markets (let's be generous and say 10%) = something like 100 million dollars

The federal government spends 2 trillion a year, give or take

[KrazyHorse]

The gov't just got through lending 700 billion dollars to large financial institutions, and you're worried about 100 million dollars a year in asset management fees?

Come on now...

[KrazyHorse]

The gov't just got through lending 700 billion dollars to large financial institutions, and you're worried about 100 million dollars a year in asset management fees?

Come on now...

[DanS]

Federal government spending is inapposite. The relevant comparison is the admin fees for the other funds. If Drake's 6 bps is to be believed, and using your 10% allocation figure, then the emerging market fund would generate a roughly equal amount of fees to all the others combined.

As a proportional matter, the emerging market fund would just take over the outlook and administration of the TSP. Granted, I do think the TSP could provide at least a modestly better admin fee than FXI, which has $11.5 billion under management.

[KrazyHorse]

then the emerging market fund would generate a roughly equal amount of fees to all the others combined

What's you're point, dear? Jack **** is jack ****. The gov't spends a ****load more than that a year. How does this spending differ from other contract work the gov't buys?