NYT: Public Pension Funds Are Adding Risk to Raise Returns

http://www.nytimes.com/2010/03/09/business/09pension.html


By MARY WILLIAMS WALSH
Published: March 8, 2010

States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers’ retirement.


Jerry W. Hoefer for The New York Times

Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, said states were looking at riskier investments in an effort to meet pension obligations.


Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”

Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

The Texas teachers’ pension fund recently paid Chicago to receive a stream of payments from the money going into the city’s parking meters in the coming years. The deal gave Chicago an upfront payment that it could use to help balance its budget. Alas, Chicago did not have enough money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the 2016 Olympics.

FULL story at link.