While we have often documented the dramatic underperformance by the hedge fund industry over the past decade courtesy of a centrally-planned market in which it no longer pays to “hedge”, culminating with countless hedge fund closures and substantial redemptions (mostly by now redundant Fund of Funds managers), today we learn that “vanilla” asset managers were also hurt over the past year in which the S&P went nowhere, and not just in Japan where the gargantuan, $1.4 trillion GPIF recently suffered major losses, but in the US as well.
Case in point: Calpers, the largest U.S. public pension fund which as the WSJ reports posted its lowest annual gain since the last financial crisis due to heavy losses in stocks.
The California Public Employees’ Retirement System, or Calpers, said it earned 0.6% on its investments for the fiscal year ended June 30, according to a Monday news release, barely turning a profit fro the full year. The last time Calpers lost money was during fiscal 2009 when the fund’s holdings fell 24.8%.
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The pending Brexit has, not surprisingly, caused a shake-up in the investment world, particularly in the UK. Of particular note is that, recently, asset management firms in Britain began refusing their clients the right to cash out of their mutual funds. Of the £35 billion invested in such funds, just under £20 billion has been affected. Continue reading »
When it comes to the Fed, Congress is mired in hypocrisy. The anti-regulation, de-regulation crowd on Capitol Hill shuts its mouth when it comes to the most powerful regulators of all – you and the Federal Reserve. Meanwhile, Congress goes along with the out-of-control, private government of the Fed—unaccountable to the national legislature. Moreover, your massive monetary injections scarcely led to any jobs on the ground, other than stock and bond processors.
If I had to choose one single institution and one single individual most responsible for the weak, putrid and unbelievably corrupt oligarch-controlled U.S. economy, I would choose the Federal Reserve and Ben Bernanke. Continue reading »
There are limits on what the Fed can do when this bubble bursts, as it inevitably will, as surely as night follows day.
It’s no secret that virtually every pension fund is dead man walking, doomed by central banks’ imposition of low yields on safe investments, i.e. Zero Interest Rate Policy (ZIRP).
Given that both The Economist and The Wall Street Journal have covered the impossibility of pension funds achieving their expected returns, this reality cannot be a surprise to anyone in a leadership role.
Public Pension Funds Roll Back Return Targets:Few managers count on returns of 8%-plus a year anymore; governments scramble to make up funding
Here’s problem #1 in a nutshell: the average public pension fund still expects to earn an average annual return of 7.69%, year after year, decade after decade. Continue reading »
On December 10, 2014 the city of Detroit exited bankruptcy.
It was the largest municipal bankruptcy in US history.
The bondholders were totally screwed in favor of the pensioners (not that I generally like bondholders).
Regardless, everything was supposed to be fixed. It wasn’t.
Continue reading »
407,000 private sector workers are about to lose most of their pensions.
I first wrote about this on April 21, in One of Nation’s Largest Pension Funds (Truckers) Will Reduce Benefits or Go Broke by 2025.
The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states applied for reductions under that law.
Currently the plan pays out $3.46 in pension benefits for every $1 it receives from employers. That’s a drain of $2 billion annually.
The plan filed for 60% cuts in pensions. The Treasury Department has the final say. The verdict came in today: “cuts not deep enough”. Continue reading »
One of the largest educator pension funds in the U.K., the Universities Superannuation Scheme (USS) is implementing significant changes to the plan benefits as it becomes increasingly under-funded, just like its peers in the United States. The changes are drastic, and are meant to keep the fund solvent in order to at least pay some benefits rather than none over time. Additionally, the plan, which represents 330,000 members, will transition from defined benefit to defined contribution leaving members at the mercy of the performance of the money managers handling their investments.
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Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them. And now take all the other 7,499 educators. The retirees in question paid so little into their own retirement (breaking even on their cost basis within the first 20 months of retirement) that taxpayers now face a $900 million bill just to keep the pension payments flowing!
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New York City’s largest public pension is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees.
“Hedges have underperformed, costing us millions,” New York City’s Public Advocate Letitia James told board members in prepared remarks.“Let them sell their summer homes and jets, and return those fees to their investors.”
“Hedge funds are charging exorbitant fees for high-risk and opaque investments,” said James.
– From last week’s post: “Let Them Sell Their Summer Homes” – NYC’s Largest Public Pension to Ditch Hedge Funds
One of the largest, most destructive scams I’ve ever come across in the financial sphere (and that’s saying a lot), relates to the purposeful shift of state pension fund assets into opaque, shady, punitive and one-sided relationships with “alternative investment” managers, specifically hedge funds and private equity firms. Continue reading »
– George Carlin: The American Dream (Video):
“…they want your fucking retirement money.
They want it back, so they can give it to their criminal friends on Wall Street.
And you know something? They’ll get it. They’ll get it all from you, sooner or later, because they own this fucking place.”
A short excerpt from the video “Life Is Worth Losing” (2005).
A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits.
As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.
Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income. Continue reading »
H/t reader squodgy:
“The inevitable economic collapse, should be initiated by Government default, i.e. non payment of debt or even wages for government and military wages.
But logically, to succeed in their plan to have Martial Law & control, the military MUST be paid.Not least because of the smokescreen of war.
That can only be done via stealing our savings, there is no viable alternative for them.
Savings and pensions are therefore unsafe if not fragmented and/or converted.”
According to financial research firm ICI, total retirement assets in the Land of the Free now exceed $23 trillion.
$7.3 trillion of that is held in Individual Retirement Accounts (IRAs).
That’s an appetizing figure, especially for a government that just passed $19 trillion in debt and is in pressing need of new funding sources. Continue reading »
“You know anybody hiring a 73-year-old mechanic? I’m available.”
Dale Dorsey isn’t happy.
After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school. Continue reading »
The vast majority of Americans who expect to retire in the next decade can count on little income other than their Social Security. This is true not only for low-income workers, who have struggled most of their lives, but also for millions of middle-income workers. Although Social Security is a tremendously important program, and provides a solid base that retirees can depend upon, its $16,000 average annual benefit doesn’t go very far. Many if not most can expect to see sharp reductions in living standards. Continue reading »
Strapped for cash and eager to expand social entitlement programs and government dependency, President Obama is proposing to generate hundreds of billions of dollars in new revenues for the government by taxing, of all things, your retirement.
For the past couple of years, some analysts and administration watchers have predicted that the Obama Administration would eventually make such proposals, given its propensity to produce trillion-dollar budget deficits. And now, it seems, those predictions may be about to come true.
As reported by Market Watch: Continue reading »
Late last year, Japanese PM Shinzo Abe effectively forced the $1.1 trillion Government Pension Investment Fund to double its domestic equity allocation. With Kuroda providing perpetual Nikkei plunge protection, and with Abenomics set to bring about an economic renaissance, what could possibly go wrong?……
By now, Illinois’ budget problems are no secret.
Back in May, after the State Supreme Court struck down a pension reform bid, Moody’s move to downgrade the city of Chicago thrust the state’s financial woes into the national spotlight.
Since then, the situation hasn’t gotten any better and despite hiring an “all star” budget guru (for $30,000 a month no less), Bruce Rauner was unable to pass a budget in a timely fashion leading directly to all types of absurdities including everything from the possibility of shortened school years to lottery winners being paid in IOUs.
Now, as Bloomberg reports, pension payments are set to be delayed. Bond payments, apparently, will still be made.
Illinois will delay pension payments as a prolonged budget impasse causes a cash shortage, Comptroller Leslie Geissler Munger said. Continue reading »
Following yesterday’s collapse in the Nikkei, when a 4% drop pushed it red for the year below 17,000, down 20% from a high of 21,000 hit just over a month ago, we had just one question for Japan’s pension fund “fudiciaries” who have been “greatly rotating” out of bonds for the past few years as the primary sources for BOJ debt monetization, dumping trillions in fixed income yen, and promptly buying up equities: equities which have gone nowhere in 2015, and which have posted massive losses in the third quarter. The question was:
What are Japan’s pension fund losses after the Nikkei wipeout from 21k to 17K?
— zerohedge (@zerohedge) September 29, 2015
Less than 24 hours we got the answer, when moments ago Nikkei reported thatQ3 losses at (at least one) pension funds were just under JPY 10 trillion in the third quarter. Continue reading »
– Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-Power (ZeroHedge, Aug 27, 2015):
Update: China readies new bailout mechanism – pooling CNY2 Trillion of Pension funds for “investment”
A busy night in AsiaPac before China even opens. Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody’s downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits – China’s bailout fund needs more money (applies for more loans from banks) – in other words – The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms – lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger – most since March, but even with last night’s epic intervention, SHCOMP looks set for its worst week since Lehman.
“Greece’s state insurance funds are resorting to external loans to cover their needs as fears grow that the measures of the third bailout will not be enough to cover the rest of 2015’s liquidity needs.”
– Meanwhile In Greece, Pension Funds Tap Emergency Loans (ZeroHedge, Aug 25, 2015):
This has not been a great year to be a pensioner in Greece.
Over the course of the country’s fraught bailout talks, Greece’s pension system was frequently in the troika’s crosshairs. As for PM Alexis Tsipras, pension cuts were generally considered to be a so-called “red line” and intractable disagreements over pension reform quite frequently resulted in the total breakdown of negotiations. Continue reading »
H/t reader M.G.:
“China is using pension funds to try and shore up their failing markets. How would you like your pension funds used by the government to stop the implosion? This tells me they are in deeper trouble than they have admitted…..”
And it is the Chinese people that are in real trouble.
A polluted environment, toxic food and a failing illusion of economic growth & prosperity.
And you don’t want to live in Shanghai when the greatest financial collapse in world history will happen.
– Surprise! 260 million people live in just 15 Chinese cities (CNN Money, April 21, 2015)
– China share slide: Pension fund to invest in stock market BBC News, Aug 23, 2015):
China plans to let its main state pension fund invest in the stock market for the first time, the country’s official news agency, Xinhua, has reported.
Under the new rules, the fund will be allowed to invest up to 30% of its net assets in domestically-listed shares.
China’s main pension fund holds 3.5tn yuan ($548bn; £349bn), Xinhua said. Continue reading »
– In Key Decision, Junk-Rated Chicago’s Pension Reform Bid Ruled Unconstitutional (ZeroHedge, July 25, 2015):
On Thursday, we previewed a critical court ruling involving Chicago mayor Rahm Emanuel’s effort to cut pension expenses and plug a yawning budget gap. Here’s a brief recap of the story so far:
Back in May, the Illinois Supreme Court set a de facto precedent for lawmakers across the country when a bid to cut pension benefits was struck down in a unanimous ruling. Anyone who might have been confused as to the significance of the decision got a wake up call from Moody’s when the ratings agency, citing the read-through for Chicago’s fiscal situation, downgraded the city to junk. This is part of a larger fiscal crisis in the country which has left almost half of US states facing funding gaps for the upcoming fiscal year. All told, the total pension shortfall across states and cities is anywhere between $1.5 trillion and $2.4 trillion depending on who you ask.
– Pension Shocker: Plans Face $2 Trillion Shortfall, Moody’s Says (ZeroHedge, July 18, 2015):
“Moody’s, which in 2013 began using a lower rate than governments do to calculate future liabilities, has estimated that the 25 largest U.S. public pensions alone have $2 trillion less than they need”, Bloomberg reports.