Sunday, April 12, 2015

Public Pension Decimation Campaign

Public pension fund accounting changes from GASB 68 loom over state and local governments.

This Statement is effective for fiscal years beginning after June 15, 2014. Earlier application is encouraged. 
After June 30 a series of government fiscal years will close.  Auditors will calculate their "net pension liability."   This number will astound most governmental entities.  With crisis comes opportunity.  Government leaders will be encouraged to reduce pension benefits and swing for the fences for yield.

Hedge fund managers, private equity underwriters (PEUs) and alternative investment managers stand ready with their bats to hit public pension home runs.  They'll earn a 2% annual management fee and 20% of gross profits.  

Reuters reported an interesting development that coincides with the pension accounting change:

Former Enron trader and hedge fund billionaire John Arnold may be about to launch a national publicity campaign to convince U.S. voters of the need to reform public pensions, according to a document seen by Reuters.

According to a September report by the ratings agency Moody's, the funding shortfall for the 25 largest U.S. public pension funds is $2 trillion. Growing costs were significant factors in the recent bankruptcies of Detroit and the California cities of Stockton and San Bernardino.
Hedge fund and PEU billionaires want to invest public pension money.  They promise higher returns to make the pension more financially sound over time.  Yet, they also love highly discounted, government guaranteed income streams.  How many financially stressed municipalities will sell public assets on the cheap to PEUs?

Back to the publicity campaign:

The request for proposals seeks a firm to launch a one-year publicity campaign beginning this month.

According to the document, the campaign would involve market research, polling and focus groups to test views about public pensions, the development of a bipartisan coalition of groups and individuals seeking pension reform, and the execution of a multi-faceted national communications campaign. It gave no indication of how much money Arnold planned to spend on the campaign.

Arnold has become the dominant figure funding pension reform efforts in recent years, bankrolling ballot initiatives and groups in 25 jurisdictions that largely sought to cut pension benefits.

Arnold was a trader at Enron, the defunct energy company, before going on to make an estimated $3 billion running Centaurus, a Houston-based natural gas trading hedge fund
 His retirement is safe.  Is yours?

Update 4-14-15:  NY Fed Chief William Dudley joined the pension decimation movement saying municipal bankruptcies imply wider problems.  One key issue identified is unfunded pension liabilities.

Update 6-21-15:  Treasury Chief Jack Lew appointed Ken Feinberg to shaft retirees