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Showing posts from December, 2008

2008: Year of Reckoning for Pensions?

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How will you remember 2008? Most investors will remember 2008 as a year of turmoil:
The past 12 months will be remembered as a gut-wrenching confluence of unlikely defining trends, almost all unpleasant: a puncturing of the housing bubbles in the U.S. and Western Europe; a paralyzing credit freeze among banks worldwide; an abrupt plunge in commodity and stock prices; global government bailouts of banking, auto and other sectors, and of consumers (through "stimulus packages"); and the re-emergence of unapologetic deficit spending to put an economic Humpty Dumpty back together again. But the year is better understood as one of reckoning, of forced atonement for past sins. The industrialized world has long been living beyond its means, floating everything from unaffordable house purchases to highly leveraged corporate takeovers on a sea credit of unprecedented volume. When the tide of easy money that characterized most of the decade finally went out, crises long in the making su…

Novices Running Pension Funds?

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Let me ask you a question: should pension fund managers get high salaries and huge bonuses if they lose 30%, 40% or more in a year?

I know 2008 was a brutal year and we are going to hear a chorus of explanations from the presidents of the top public pension funds telling us that this was "a once in a lifetime event" and that we need to remember that they "invest for the long-term".

Give me a break! If you've been reading the Pulse regularly, you would see that these pension fund turkeys got clobbered because they all grossly underestimated the biggest risk in the financial system, namely, systemic risk - risk they helped fuel by blindly investing billions in alternative investments like commercial real estate, private equity, hedge funds, commodities and whatever else the investment banking sharks were peddling to them.

Importantly, they all fell victim to the illusion of stability, believing that things will continue to move along just as they did for the last 25…

Boxing Day Specials?

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I must admit that I hate Boxing Day. People lose perspective and rush out to buy whatever they can as retailers slash prices. I prefer waiting until the mad rush is over before I venture off into any shopping mall.

Then again, I always hated shopping and with MS, I have to plan my trips carefully so I do not waste time and energy browsing. I know what I want ahead of time and I call in advance to make sure they set it aside for me.

But today is a day for that all-American past time - now global past time - of shopping for deals to spend whatever they can after Christmas. I joke with my buddies telling them "Thank God for women or else we'd be in a Depression by now."

At the time of writing this commentary (mid day), stocks rose modestly in light post-holiday trading after the GMAC lifeline, but investors are still cautious about embarking on a year-end rally following dreary preliminary readings on holiday spending:
Not surprisingly, Americans spent much less on gifts this s…

A Bankers' Christmas?

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There is not much to report about this Christmas except to tell you that the Massachusetts state pension fund lost $2 billion last month, bringing its loss for the year to $16.1 billion, the worst performance since it was formed:
The drop brings the assets under management in the fund, which is controlled by state Treasurer Timothy Cahill, to $37.6 billion, according to a memo from Stan Mavromates, the chief investment officer. He said the fund's emerging markets portfolio is leading the decline, falling 58.6 percent so far this year.The return on the fund, which is used to pay the pensions of public sector retirees, is down 30.1 percent for the year through the end of last month, according to Mavromates.
Prior to this year, the worst year on record was 2002 when the assets under management dropped 8.9 percent, according to information obtained from the treasurer's office.Francy Ronayne, a spokeswoman for Cahill, referred questions to Michael Travaglini, executive director of th…

The Grinch Who Stole Pensions' Christmas

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Dear Santa,

2008 has been a terrible year for global pension funds. What looked like a contained subprime crisis spiraled into a full blown global credit crisis wiping out trillions of dollars from the balance sheets of global pension funds.

All asset classes got hit, including those beloved alternative investments that were suppose to deliver "absolute returns" when equity markets tank.

That's right, Santa, hedge funds are down this year and it now looks like private equity and commercial real estate are going to tank too.

How can you let this happen Santa? How can you allow the Grinch to steal precious alpha from our pension funds? Don't you realize that we invested billions of dollars into alternative investments so that we can go back to our stakeholders at the end of the year and claim we added significant added value in private equity, real estate and hedge funds?

It was all so beautiful while it lasted. We adopted ridiculous benchmarks in these alternative investme…

Yale's Yardstick Leaves Pensions in Peril

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Let me begin where I left off yesterday - the great alternatives pension debacle. Earlier this month, I wrote about how Harvard's horror will decimate pension funds.

Last week, Yale disclosed that its endowment had fallen at least 13.4 percent in the four months since June:
Richard C. Levin, Yale’s president, said in a letter to the university’s faculty and staff that the endowment totaled about $17 billion, and he warned that Yale could be facing a $100 million shortfall in the 2009 school year.He said the value of Yale’s marketable securities had declined 13.4 percent for the first four months of the university’s fiscal year, which started July 1, and that it had since fallen even more.
Taking into account such illiquid assets as real estate and private equity, he said, the endowment, which is led by David Swensen, was down 25 percent, and Yale is now anticipating it will be down that much for its full fiscal year.That figure is significantly better than Harvard’s endowment, which…