Saturday, November 22, 2008

State's Pension Funds Take $5 Billion Hit

The precipitous decline in the stock market in recent months has taken its toll on the state's public retirement funds balances. To date, losses of close to $5 billion have been racked up, reducing the PERF balance from $16.7 billion to about $12 billion, or approximately 28%, according to the IBJ's Peter Schnitzler. The losses erase all of the gains realized over the past 3 years. There is some criticism for PERF's investment managers, who earned over $57.6 million last year. “I won’t second-guess anybody’s investment decisions,” said Bill Styring, president of locally based Styring and Associates and former senior fellow at the conservative Hudson Institute. “But I do have a cat by the name of Trixie who could probably have done as well,” he said. “Trixie and I figured out, over a year ago, where this thing was going.” He added: “The problem is, how much money are we paying these geniuses to lose my money, your money? I’ll work for $1 and my cat needs a can of cat food now and then.”

Schnitzler's report indicates that almost every pension system in the country has shed at least 10% of its value over the past year. "Every report we’re getting is down, down, down,” Elizabeth Karier of Pensions and Investments tells Schnitzler. “It’s horrible. It looks awful; it is awful. But they’re pretty much in the same boat as everybody else right now.” Most have bled between 15% and 20% of their total assets she says. One expert notes that PERF fared better than the S&P 500 but others think that is a dubious yardstick to use for comparison purposes.

PERF has responded in recent months by adopting a more conservative investment strategy. "Under the previous allocation, PERF earmarked 65 percent of its assets for equities, while 20 percent went to fixed-income investments such as bonds, and 15 percent went to alternative assets, such as venture capital, real estate investment trusts and hedge funds," Schnitzler reports. "Under the new asset allocation, PERF will hold only 40 percent of its assets in equities." "It will simultaneously increase fixed-income and alternative investments to 30 percent each. That’s a major policy shift for a pension that, until 12 years ago, had never invested in anything riskier than bonds. And before August 2006, PERF held only 5 percent of its assets in alternatives." The downside of this new investment strategy is that PERF won't quickly recover its losses if and when the stock market bounces back.

5 comments:

roger61611 said...

Wischmeier is out of his mind to increase exposure to "venture capital, real estate investment trusts and hedge funds" at this stage.

Hedge funds are doing far worse than the stock market. REIT's are bleeding out.

Sheesh.

This shows what happens when the constitution is ignored...the state is barred from even owning equities, yet PERF and TERF go merrily along like it doesn't matter.

Wischmeier doesn't care, he and his pals get paid anyway, even if it goes to zero.

spooknp said...

This shows what happens when the constitution is ignored...the state is barred from even owning equities, yet PERF and TERF go merrily along like it doesn't matter.

Technically, is that money owned by the state? It was my thought that the public employees, who are forced to pay into the system, owned that money.

Lord Peter said...

This shows what happens when the constitution is ignored...the state is barred from even owning equities, yet PERF and TERF go merrily along like it doesn't matter.

Umm...this is wrong; the constitution was amended in 1996 to allow PERF and TRF to invest in stocks. See Art. 11, Sec. 12:

Section 12. The State shall not be a stockholder in any bank; nor shall the credit of the State ever be given, or loaned, in aid of any

person, association or corporation; nor shall the State become a stockholder in any corporation or association.However, the General Assembly may by law,

with limitations and regulations, provide that prohibitions in this section do not apply to a public employee retirement fund.

Vox Populi said...

It would have been nice had they released this information before the election, when Jill was asking for it.

HOOSIERS FOR FAIR TAX said...

I'm a fan of Dr. Styring and Trixie. $57 million, huh?