All That Glitters Is Not Gold: An Analysis of US Public Pension Investments in Hedge Funds

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  1. DeDude commented on Nov 9

    So $ 8 billion lost investment revenue – yet hedge fund managers collected and estimated $7.1 billion in fees. Can you say snake oil salesmen?

    It always was a crime to allow public pension fund money to be invested with hedge funds – now it may be a prosecutable crime.

    • Iamthe50percent commented on Nov 9

      Ah! But what about the kickbacks the pols collected to direct that money to the hedge funds?

      Pension funds should only invest in T-bonds and index funds. The funds should be selected by the low qualified bidder.

    • DeDude commented on Nov 9

      It is one of the reasons I think all public employees should be included in the social security system as their base “defined benefit” pension and poverty insurance.

      The theoretical advantage of covering social security types of benefits by a municipal/state benefit/pension fund is that they can invest in something other than treasuries and get higher investment returns (providing higher benefits at lower cost than SS). However, there are a number of presumptions in order for this to work.
      1. Politicians must put away sufficient money into the trust fund to cover the benefits that they are promising the employees (whatever you promise the employees can be covered, provided that the annual payments into the trust fund are high enough).
      2. Pension managers and politicians are competent and cannot be fooled or bribed to serve other interests than the optimal investments results for the trust fund.
      3. Politicians will not sacrifice the long-term health of the trust funds in order to obtain short-term political benefits such as avoiding tax increases.

      The problem is that those presumptions are violated on a regular basis. The end result is an overpromised, underfunded pension system that sooner or later hits a serious crisis. The reason I think public employees would be better off being in social security is that the solutions to the crisis are often very bad for the employees. In Memphis they just cut retired police and firefighters off from their health insurance and also converted the defined benefits to a defined contribution system for anybody with less than 10 years of service. They didn’t even discuss increasing the property tax by one cent – so the full weight of consequences from mismanagement by politicians, landed on the employees.

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