US Pensions Squander Retirees’ Cash On Fees For Underperforming Hedge Funds
by Tyler Durden
ZeroHedge.com
12/09/2015
As you might be aware, America’s state and local governments are facing a series of fiscal crises that are inextricably bound to public sector pension funds.
This is something we’ve spent quite a bit of time documenting over the years, and especially since May, when the Illinois State Supreme Court struck down a pension reform bid, triggering a Moody’s downgrade for the city of Chicago and thrusting the state’s budget crisis into the national spotlight.
In October, Comptroller Leslie Geissler Munger admitted that Springfield would have to forego a $566 million pension payment in November.
And it’s not just Chicago. There’s also Houston, where a $3.2 billion pension-funding gap imperils the city’s credit rating and threatens to hurt demand for the city’s debt. “Among other concerns, the city’s plans assume relatively high investment returns of 8% or above, meaning the funding gap may be understated,” Marc Watts, chairman of the Greater Houston Partnership’s Municipal Finance Task Force, told WSJ. “Yes, ‘relatively high investment returns,’ as in, ‘returns that in today’s world can’t possibly be generated by anything that even approximates a conservative mix of assets,’” we said.
This is a persistent problem with public pension funds. In order to keep the present value of the liability from ballooning, managers need to cling to a 7-8% return assumption. Of course in a NIRP world, that’s next to impossible to achieve unless you reach for yield by “diversifying” into riskier asset classes. Here’s a graphic from a 2014 report from a panel commissioned by the Society of Actuaries:
The Rest…HERE
