Wall Street Managers have cost Americans more than $600 Billion over the Past Decade

Over the last decade, fund managers who oversee the pensions of the nation’s teachers, firefighters, police and other government workers have doubled down on an investment strategy that has cost U.S. taxpayers at least $600 billion, possibly more than $1 trillion, investment data and calculations by Yahoo Finance found.

Seeking higher gains, pension fund managers have upped their investment in so-called alternative strategies that are costly and weigh down returns, data shows.

“We find that some of the worst-performing plans are those that went into alternatives late in the last decade,” said Jean-Pierre Aubry, a research director at the Center for Retirement Research at Boston College who studied the impact of investing in alternatives on public pension funds.

Alternative funds invest in things like hedge funds, private equity, real estate or commodities, rather than traditional stocks and bonds. Because pensions are guaranteed, the underperformance has hit taxpayers in the form of budget cuts for schools, hospitals and libraries and decreased spending on infrastructure, health care and other public projects.

Aubry’s studies show that across the board, public pension fund managers have thrown increasingly more money at these complex and pricey alternative funds, despite the fact that they consistently underperform simple index funds available for a fraction of the fee cost.

Fund managers have moved to alternative investments, in part, because when competing for the contracts to manage pensions, they sold pension boards on expected high returns that have not materialized. They are now trying to provide a jolt to the plans, which are largely underfunded, said Scott Kubie, chief investment officer at financial management firm Carson Group.

“Those high assumptions allowed [the employees] to make not as high contributions,” Kubie told Yahoo Finance. “They’re trying to find a way to catch up… because they haven’t covered the liabilities. I don’t know if that ends particularly well.”

State pension funds underperforming

Several studies have shown that pension fund managers are unable to consistently beat the market. And the growing popularity of alternative investments has only exacerbated the trend.

Data from the Center for Retirement Research at Boston College shows that state and local pension plans steadily increased their holdings of alternative investments, rising from 9% in 2005 to 24% in 2015. A 2017 study from Coller Capital found that a net 23% of investors plan to increase their allocations to private equity over the next 12 months.

With the nation’s pension liabilities having risen to $6 trillion, Jeff Hooke, a lecturer at Johns Hopkins University, recently conducted a report for the Maryland Public Policy Institute that found the state had lost billions in retiree income on account of the fees and lost revenue.

“The sales pitch of the alternatives community is ‘We’ve got some kind of secret sauce. Our returns are going to be higher than stocks and bonds,’” Hooke, who has authored numerous studies on the performance of public pension funds, told Yahoo Finance. “The only problem with the sales pitch is it doesn’t work.”

Yahoo! Finance

 

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

3 Ways to Position Your Business and Your Family for Future Success

Many business owners support their families through their businesses. If something were to happen to you, such as a sudden death or permanent injury, it may affect both your business and the lifestyles of the people who rely on you. Here are three things you should consider when planning fo …

Is Your Business Worth as Much as You Think?

As a successful business owner, you know that your business has value. It likely supports you and your family’s lifestyle. It provides a paycheck and perhaps benefits to the people you employ. The products or services you provide are meaningful to your clients. But if someone asked you how …

10 Ways to Prepare for Retirement

Are you prepared for retirement? Planning and preparing for your next chapter well in advance is the best way to be ready – financial security doesn’t just happen without careful thought. When you plan ahead, you: Have the luxury of deciding when and how you will retire Know more about your …
1 2 3 77 78 79

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation

TweetsFollow Us