Public Pension Funds Are Adding Risk to Raise Returns

New York Times ^ | March 8, 2010 | Mary William Walsh

[reaganaut1]

States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers’ retirement.

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”

Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

The Texas teachers’ pension fund recently paid Chicago to receive a stream of payments from the money going into the city’s parking meters in the coming years. The deal gave Chicago an upfront payment that it could use to help balance its budget. Alas, Chicago did not have enough money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the 2016 Olympics.

A spokeswoman for the Texas teachers’ fund said plan administrators believed that such alternative investments were the likeliest way to earn 8 percent average annual returns over time.

[reaganaut1]

It is a recipe for disappointment when investors base their expected returns on what they need rather than what the market is likely to offer. That is what is happening with state and local pensions. Politically it is easier to delay the day that taxes are raised massively, pension promises are broken, or both.

[NaughtiusMaximus]

I manage my retirement savings like the ultra rich do, they’re in a coffee can under my bed. (The savings, not the ultra rich.)

[RU88]

One gigantic house of cards built on a foundation of sand.

[Matchett-PI]

Giant California pension funds may lower earnings expectations
By Dale Kasler dkasler@sacbee.com
Wednesday, Mar. 3, 2010 - 12:00 am | Page 1A

[randita]

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.

There are no taxpayers to bail out private companies.

[Matchett-PI]

"There are no taxpayers to bail out private companies."

That's true --unless they're [1] large industrial corporations and [2] unionized.

The Steel Mills and Auto Manufacturers weren't a bit worried about the deals they cut with the unions as they knew the tax payers would wind up getting stuck with the obligations in the end.

This is the same cozy relationship that government entities have with the public sector unions. They'll EVENTUALLY all stick the taxpayers with the un/underfunded obligations they negotiate in their contracts.

This is why we must get rid of all public employee unions and deny government (tax-payer) bailouts for large unionized companies.

That we've put up with this situation for as long as we have is scandalous. bttt