NYT: Pension Officers Putting Billions Into Hedge Funds

[BeyondGeography]

By RIVA D. ATLAS and MARY WILLIAMS WALSH
Published: November 27, 2005

Faced with growing numbers of retirees, pension plans are pouring billions into hedge funds, the secretive and lightly regulated investment partnerships that once managed money only for wealthy investors.

The plans and other large institutions are expected to invest as much as $300 billion in hedge funds by 2008, up from just $5 billion a decade ago, according to a study by the Bank of New York and Casey, Quirk & Associates, a consulting firm. Pension funds account for roughly 40 percent of all institutional money...

<While most pension plans have modest stakes in hedge funds, others have invested more than 20 percent of their assets. Weyerhaeuser, the paper company, has 39 percent of its pension fund's assets in hedge funds. In Congress, there has been a push for amendments that would make it easier for hedge funds to manage even more pension money, without having to comply with the federal law that governs company pensions.

<Pension officials who have been shaken by market downturns and persistent deficits are attracted by hedge funds' promise of richer, or more consistent, returns. But the trend has caused some consultants and academics to voice cautions. They question whether hedge funds, with risks that are hard to measure, are appropriate for pension funds, whose sole purpose, by law, is to pay out predetermined benefits to retired workers.>

http://www.nytimes.com/2005/11/27/business/yourmoney/27hedge.html?hp&ex=1133067600&en=cfaae74c7266a2d0&ei=5094&partner=AOL

[SpiralHawk]

1. "All your retirement benefits are (or will soon) belong to us."

BushCo & Republican Cronies

[sarcasmo]

2. Spiral, they not only want your Pensions they want your wages too.

Good luck finding a job around here making over ten bucks an hour.

[fshrink]

4. Was written and explained in substance

about 135 years ago. Das Kapital, Karl Marx.

[aquart]

3. Are they insane?

[Journeyman]

5. I wonder if the rest of us will be required to cover these pensions. . .

through the Pension Benefit Guaranty Corporation -- the federal agency that makes good on corporate pie-in-the-sky promises.

It's such an idiotic approach: Corporations make baseless promises to their workers, take no steps to ensure the promise is funded properly, and then their duped employees expect the government -- and by extension, those of us who may not even be covered by such a bogus promise -- to cover the costs of what proves to be a miserable lie the workers were told by the corporation for which they labored.

Though I have to admit, the PBGC is a pretty little scam for those who can crowd under its ever-diminishing umbrella. I started a defined benefit pension for my employees this year -- it's only my wife and a couple of other people -- but under my plan I've promised them all a pension of $18,600 a month, plus medical and beer money, payable on the first month after my company goes bust (when my wife will need a retirement plan to take the place of our current draw). Since the PBGC is in the business of funding the outrageous lies corporations blather to their minions, no one will mind if it takes over and begins payments to cover the falsehoods I've passed off to keep my employees happy (and stupid).

Can anyone tell me how my plan differs from that of the Big 3 automakers or the airlines, or in this case Weyerhauser, who have also made no provisions to adequately fund the falsehoods they are foisting on their employees, lies they expect the people and the federal government to make good?

[anotherdrew]

7. leaders of these companies and funds are all guilty of fraud

A generation of corporate leadership should stand trial

[lovuian]

6. This is whats scary about Pensions the Pension fund manager

placing the workers money into a risky endeavour!!!

with this kinda alternative the 401K is better...

They are stealing from the country and its workers massively!!!

[Skink]

8. 401K's are good you can roll them over once you get downsized.

But what are these pensions, and how do you get one?

[snippy]

9. There are two very simple, but very serious, reasons this should

be prohibited, or at least greatly limited, by law. Both reasons have to do with not allowing pension plans to risk losing a high percentage of their assets. The first has to do with the rationale for not heavily regulating hedge funds. The second has to do with the fee structure of hedge funds and how that may affect the duration of a particular fund.

The reason hedge funds are not heavily regulated is that investment in a hedge fund is limited by the SEC to investors with a high net worth. Presumably such investors can afford to lose a large portion of their investment and have sufficient financial sophistication to evaluate the risks. While pension plans usually have financial sophistication, they can not afford to lose a large portion of their investment in a hedge fund if that investment represents a significant percentage of their assets.

The fee structure of hedge funds increases the probability that investors may lose a large percentage of their investment. Hedge fund managers charge a small percentage upfront and a much larger percentage of the profits. For example, an investors may be charged a fee of 2% of his initial investment and 20% of all profits. The risk arises if the hedge fund begins to lose money. If the losses reach a high enough point, the hedge fund manager may terminate the fund and return the remaing portion of the initial investments to the investors. The manager does this because it becomes too difficult to earn enough gains to offset the prior losses, and until those losses are offset and the fund shows a profit the manager earns no fees. If that happens a pension plan invested in the fund will lose a large portion of its investment.

[VegasWolf]

10. Oops! Didn't see that stock market collapse coming. My bad! Hope

you hid some retirement money under your mattresses. This message brought to you by your friendly hedge fund managers.

In all seriousness, the republican leadership is not even bothering to hide the plundering now. They know with the massive debt we are struggling to carry, that there is no way back from here. They are just grabbing all remaining pesos ( err sorry, dollars ) on their way out of the door.

[depakid]

11. I guess they forgot about LTCM

How short American memories are....

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

[banana republican]

12. Wait until the FASB comes out with it's new regulations

on accounting for pensions.


YOU AIN'T SEEN NOTHING YET...

When corporations are required to account for pension underfunding watch the pensions start to fold and dry up.

Defined benefit plans will disappear.

and you will only be left with cash balance pensions

and retires (like my self) will get screwed bigtime....