Tags: Pensions | Riskier | Funds

NY Times: Pensions Find Riskier Funds Fail to Pay Off

Monday, 02 April 2012 03:16 PM

Fees charged by alternative investments such as private equity and hedge funds have sharply reduced returns on many pension funds for public workers, The New York Times reports.

Indeed, a recent study by London research firm Preqin showed that funds with a third to more than half of their money in private equity, hedge funds and real estate had returns that were more than a percentage point lower than returns of the funds that largely avoided those assets.

They also paid nearly four times as much in fees.

Editor's Note: Did Obama Betray Seniors to Gain Votes?

For example, the $26.3 billion Pennsylvania State Employees’ Retirement System has more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds.

The system paid about $1.35 billion in management fees in the last five years and reported a five-year annualized return of 3.6 percent, well below the 8 percent target needed to meet its financing requirements, and lagging behind a 4.9 percent median return among public pension systems.

In contrast, in Georgia, the $14.4 billion municipal retirement system, which is prohibited by state law from investing in alternative investments, has earned 5.3 percent annually over the same time frame and paid about $54 million total in fees.

Bizjournals.com reports that recently passed legislation allows managers of the Georgia state employees’ pension fund to make “alternative investments” to try to boost returns under legislation that has already cleared the state’s House of Representatives.

Editor's Note:
Did Obama Betray Seniors to Gain Votes?

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Monday, 02 April 2012 03:16 PM
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