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How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

theintercept.com

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Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#31

Post by lmm »

lotsofpulp wrote: post #23
lmm wrote: post #13

Earlier quoted context omitted.

A long time horizon is supposed to be what governments are good at. No reasonable employee would trust a private insurance company to still be in business by the time they come to require, absent a governmental guarantee - and if something is both paid for by the government-as-employer and guaranteed by the government-as-regulator, what is bringing in a private company supposed to add to the mix other than taking pro…

It adds transparency and accountability. And it’s up to the government employees if they want to bring in a private company. As a taxpayer, and employer of government employees, I would like a clear accounting of how much payroll is. I don’t want politicians buying union votes with unsustainable promises that get kicked down the road 20 years later, and I don’t want to hear “my predecessors didn’t properly fund the p…

> If a private entity can’t afford to offer annuities without the power to increase taxes, then they are obviously a very, very expensive benefit, so why should only government employees get them?

Because the government can provide them more cheaply than a private entity by its very nature - shouldn't it make use of that competitive advantage? Better pension schemes are one of the ways government are able to offer a competitive employee compensation package despite substantially below-market headline salaries; if you replaced the guaranteed annuities with their market dollar value that would mean costing the government more to be able to hire the same people, offering government employees less value overall and so getting lower-quality employees, or both.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#32

Post by dsfyu404ed »

lotsofpulp wrote: post #24
tareqak wrote: post #16

Earlier quoted context omitted.

I can see your point from a policy level. However, once you have generations of government employees on this scheme such that their retirement planning is based around it, then it becomes much harder for everyone involved to adjust. From the article, it seems that teachers don't have Social Security withheld, so they don't have that as a fallback either: Teachers, like any other public employees who don’t have Social…

Private companies do it all the time, it’s called freezing the pension plan.

Private companies have to overcome the complaining of the unions (if applicable) and justify their actions to the shareholders. Politicians have to overcome a complaining police/teachers/whatever union that is plastering voters (analogous to shareholders in the private example) eyeballs with negative adds about how politician X "doesn't care about the teachers" or whatever. It's much easier to just go with the flow and blame it on the prior set of politicians since that doesn't make as many people hate you as attempting to change things would.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#33

Post by ciamac »

bedhead wrote: post #22

Kentucky's pension is screwed for all of the same reasons many other public pensions are (in order of importance): - Overpromising of benefits - Underfunding mechanisms that allow deferral of contributions - General mismanagement (I can assure you the best and brightest investors and fiduciaries don't work at public pensions) - Corruption (ie related party deals) The idea that "evil hedge funds" are responsible is si…

Well the direct mechanism in this case is hedge funds paying "placement agents" which fund the corruption, so they do have responsibility, even if they are not solely responsible.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#34

Post by pc86 »

zimablue wrote: post #19
kylnew wrote: post #14

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

That's cool, so US bonds only then?

I mean a large percentage of the fund should probably be in bonds, shouldn't it? Depending on how many are drawing out vs. paying in.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#35

Post by dsfyu404ed »

lmm wrote: post #31
lotsofpulp wrote: post #23

Earlier quoted context omitted.

It adds transparency and accountability. And it’s up to the government employees if they want to bring in a private company. As a taxpayer, and employer of government employees, I would like a clear accounting of how much payroll is. I don’t want politicians buying union votes with unsustainable promises that get kicked down the road 20 years later, and I don’t want to hear “my predecessors didn’t properly fund the p…

> If a private entity can’t afford to offer annuities without the power to increase taxes, then they are obviously a very, very expensive benefit, so why should only government employees get them? Because the government can provide them more cheaply than a private entity by its very nature - shouldn't it make use of that competitive advantage? Better pension schemes are one of the ways government are able to offer a…

>Because the government can provide them more cheaply than a private entity by its very nature

Please justify this. Public sector is not known for it's low overhead of efficiency.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#36

Post by paulie_a »

lotsofpulp wrote: post #24
tareqak wrote: post #16

Earlier quoted context omitted.

I can see your point from a policy level. However, once you have generations of government employees on this scheme such that their retirement planning is based around it, then it becomes much harder for everyone involved to adjust. From the article, it seems that teachers don't have Social Security withheld, so they don't have that as a fallback either: Teachers, like any other public employees who don’t have Social…

Private companies do it all the time, it’s called freezing the pension plan.

And that should be considered fraud.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#37

Post by coughupalung »

zimablue wrote: post #19
kylnew wrote: post #14

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

That's cool, so US bonds only then?

Don't forget mortgage-backed securities.. oh wait.

In all seriousness though, large pension plans have very diverse portfolios. Ontario teachers used to own 80% of the Toronto Maple Leafs. Ontario Municipal Employees Retirement System owns Oxford Properties, which owns and manages the office building I work in (and many others).

Edit: Added "Employees" to OMERS.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#38

Post by apo »

Pensions are Ponzi schemes, plain and simple, with government playing the role of Ponzi.

Buried deep inside the idea of a government pension is the idea that individuals are incapable of saving for their own retirement. That government needs to care for its people in old age because they won't take the necessary steps themselves.

Questionable assumptions aside, this article and many, many more like it demonstrate that government is incapable of caring for people in their old age, making many of the same mistakes with "investing" that individuals will. From the federal government down, officials have shown no reluctance to raid pensions to fund pet project, resulting in chronic underfunding.

Inflation supplies the energy to keep this toxic cauldron bubbling along. It's not enough to simply "put money aside for retirement." Instead, you need "investments" that will at least keep up with inflation. Savings accounts are out.

Enter investment "advisors," all too willing to tell an individual (or government) what to do - for a fee.

Edit: the downvotes are amusing, but a comment explaining why would be more interesting.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#39

Post by bedhead »

ciamac wrote: post #33
bedhead wrote: post #22

Kentucky's pension is screwed for all of the same reasons many other public pensions are (in order of importance): - Overpromising of benefits - Underfunding mechanisms that allow deferral of contributions - General mismanagement (I can assure you the best and brightest investors and fiduciaries don't work at public pensions) - Corruption (ie related party deals) The idea that "evil hedge funds" are responsible is si…

Well the direct mechanism in this case is hedge funds paying "placement agents" which fund the corruption, so they do have responsibility, even if they are not solely responsible.

The placement agent would be powerless if not for the pension board's incompetence and corruption, otherwise it wouldn't matter if the pension was being pitched by the marketer or the fund manager itself. Don't get me wrong, it's a game that hedge funds are playing and I despise it, but the disease is what goes on in the board room of the pension.

All of this is a sideshow to the egregious overpromising of benefits and underfunding mechanisms.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#40

Post by 1001101 »

kylnew wrote: post #14

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

Pensions needed to reach for yield with the fed funds rate scraping zero for the better part of a decade.

> Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

This is what hedge funds were built for - hedging.

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