Monday, April 2, 2012

Pension fund risky bets fail to pay off.

Pension Funds are increasingly chasing risky bets to try to hit return targets.   These investments are frequently highly illiquid, expensive, and as it turns out, not that high returning.

The shocking quote:
The $26.3 billion Pennsylvania State Employees’ Retirement System has more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds. The system paid about $1.35 billion in management fees in the last five years and reported a five-year annualized return of 3.6 percent. That is below the 8 percent target needed to meet its financing requirements, and it also lags behind a 4.9 percent median return among public pension systems.  (emphasis added) .
If those numbers are correct, then the State of Penn is paying more than 1% in fees per year.  That is appalling mismanagement.  (I say "if" because I can't believe that they are that bad).

This isn't just a problem for Pennsylvania.  My own state of North Carolina pays close to 0.5% a year in fees on its $75 billion pension fund, which while not as bad, is still a pretty terrible waste of taxpayers money.