This is not a new phenomenon. Defined-benefit pension funds, wracked with losses after 2008, know that they only way they’ll have enough money to pay out retirees is if they make some big, risky bets that hit.
And so it is with the grand dame, California’s CALPERS, which lost $60 billion this past year.
NYT: Those problems now rest largely on the slim shoulders of Joseph A. Dear, the fund’s new head of investments. He is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees’ Retirement System, the largest in the nation with $180 billion in assets.
Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.
Wow, a guy with little investment training thinks the cure is hedge funds, private equity, California real estate and timber. What could go wrong all of that? If there’s anything redeeming, it’s that at least there’s an acknowledgment that these risks are in fact big risks, whereas two years ago, pension funds, like CALPERS, had deluded themselves into thinking that weren’t highly exposed to risk, but that their various alternative-investment holdings constituted “diversification.”
And it’s great news for those hedge and PE funds, which otherwise might have a hard time raising money, were it not for all the pension funds that just have to get their numbers up — or else. (Well, or else they’d have to get bailed out by the taxpayers).
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