Tuesday, January 31, 2006

Hedge Funds--For Pensions??

Peter Gilbert, chief investment officer of Pennsylvania's State Employee' Retirement System, has been bringing in Wall Street whiz kids and pumped 23% of system assets into hedge fund. To those that would think that risky investments like hedge funds are counter-intuitive for a pension, essentially the ultimate security investment, Gilbert counters that Pennsylvania is both underfunded and has a poor employee/retiree ratio. Even annual returns of 8.5%, quite gaudy in these days of relatively low inflation, leaves the PSERS $1 billion short in assets to cover future expenses. Moreover, other states, including Idaho, are following Gilbert's lead.

This story is another example of the basket case that is defined benefit pension plans. There is potential for monumental disaster here with taxpayers throughout the country having to bail out the Keystone State retirees. Even if Gilbert's plan works reasonably well, PSERS is at best treading water (and doing so with limited chances to continue indefinitely)--promises made by past politicans just were not realistic.


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