Wednesday, September 15, 2010


Pension giant CalPERS will roll the dice to generate returns. Yes, high risk/high return is a "hair of the dog" strategy. Bloomberg reported:

Calpers made a series of disastrous bets on real estate after letting its internal risk controls break down and ceding too much control to outside investment advisers during the housing bubble.

Calpers’s unfunded liabilities amounted to $240 billion as of 2008, leaving it with only half of the assets it needs to make its required payouts, according to a Stanford University study released in April.

On top of the fiscal mess, Calpers is also caught up in a corruption scandal involving middlemen who help money managers win investing assignments from pension funds.
Oddly, CalPERS risk chase puts them in the same boat as private equity underwriters (PEU's). PEU's paid middlemen to steer pension investments to their fund offerings.

CalPERS investment shift got different reactions:

“It’s folly to think a $200 billion pension fund is going to do better than the economy,” says Rowe, chairman of Greenbrier Capital Partners Ltd., a Dallas-based investment firm. “To move out on the risk spectrum to beat the market is imprudent; it’s like running your retirement from Las Vegas.”

“The whole model of asset allocation is being reviewed by investors,” says Laurence Fink, whose firm (BlackRock) manages $1 billion in assets for Calpers. “The world is moving toward global investing with multiple products, and Joe is adapting Calpers to that model -- and I don’t think this is way out there. This is mainstream thought today.”
How is it "mainstream thought" when one can't tell the difference between a pension fund and shadow bankers, like hedge funds and private equity underwriters?

PEU's are known for leeching off Uncle Sam and CalPERS is no different. They expect $200 million in reimbursement under the Early Retiree Reinsurance Program (ERRP). That's just the tip of federal backstopping should CalPERS risky ventures fail. There's the Pension Benefit Guaranty Corporation. They rescue pensions from the death spiral.