Fund Manager Warns, Pension Apocalypse Is Coming
SilverDoctors.com
July 6, 2017
“It’s unequivocal now: We are taking money from the new employees and using it to pay off this liability for the old employees…”
From PM Fund Manager Dave Kranzler:
“It’s unequivocal now: We are taking money from the new employees and using it to pay off this liability for the old employees,” said Turner, a Gov. John Hickenlooper appointee. “And some might call that a Ponzi scheme.” – Denver Post, 6/27/17
The people in Denver who bother to read the news, especially the ones who are or will be dependent on the Colorado public employees pension fund (PERA), were greeted with a shock Tuesday. PERA is now admitting to be 42% underfunded, down from an alleged 38% underfunding last year.
How on earth is it possible for the underfunding of a pension to increase during a period of time when the Dow, S&P 500, Nasdaq and fixed income markets are hitting or are near all-time highs?
And what about the valuations of these funds using realistic mark to market prices for the illiquid assets, like private equity, commercial real estate and OTC derivatives? Harvard University is about to sell its private equity assets. My bet is that the value received will be covered up as much as possible. And we’ll never know where the fund was marked on its books. But judging of the failure vs. expectations of the SNAP and Blue Apron IPOs, private equity investments are likely over-marked on the books by at least 15-20%. A market to market here would devastate the stated funding levels of every pension fund.
It’s not just Illinois, which is de facto bankrupt, and the Connecticut State pension fund, which is also de facto insolvent. Nearly every State’s pension fund is severely underfunded, as well as most private funds.
That 42% underfunding for PERA, by the way, makes very generous actuarial assumptions about the assumed rate of return on assets vs. the assumed payouts. Those assumptions have been wrong for at least 20 years and will continue to be wrong. That’s why PERA’s – as well as most every other pension fund – has become more underfunded over the last year.
The quote at the top is from Lynn Turner, who was one of the few competent, if not respected, SEC commissioners in my lifetime. In my view, when politicians and public officials are willing to state the truth about a dire situation in public, it implies that the situation is on the precipice and they want to be disassociated with it – i.e the rats are jumping ship. Yesterday the Illinois State Senate minority leader resigned…
The Rest…HERE
