The Real Reason the Investor Class Hates Pensions

By David Webber at the NY Times

https://mobile.nytimes.com/2018/03/05/opinion/investor-class-pensions.html?smid=tw-nytopinion&smtyp=cur&login=email&auth=login-email

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The answer to all of these questions is a number very close to zero. We 401(k) holders are the world’s ideal source of capital. We let ourselves be charged high fees that we do not understand, we accept poor returns quarter after quarter, we never sue to enforce our rights, we never vote as shareholders and we never tell our investment managers how we think they ought to vote. We are beyond passive; we are supine.

At bottom, the problem is structural. We are to our investees and investment managers what nonunionized, “right to work” workers are to their employers: alone and devoid of leverage to negotiate. That stands in sharp contrast to traditional pensions, which, like unions, are collective and centrally managed.

For example, the nation’s largest traditional pension, the California Public Employees’ Retirement System, known as Calpers, has 1.9 million members and over $300 billion in assets. When it calls up an investment manager to complain about performance, or to dump that manager, or when it calls a lawyer to sue for fraud, that catches the attention of corporate managers, of hedge funds, of private equity funds. That’s why they succeed where we fail. All of us benefit from their successes, which raise the value of companies we own.

Our mutual funds could do the same for us, if they wanted to, but they don’t. Despite important recent gestures towards activism, they have trailed far behind pension fund activists, and will continue to do so. They don’t want to challenge the compensation, reelection or legal judgment of the same corporate managers from whom they hope to win the right to manage our 401(k) money in the first place. Not true for public pension funds.

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