Loading...
HomeMy WebLinkAboutHandouts_Regular_Tab 05_03/23/2010Payback Time -Public Pensions Are Adding Risk to Raise Returns -Series - NYTimes.c... Page 1 of 3 Welcome to TimesPeople ~ TimesPeople recommended: An Absence of Class Get Started 6 sa PM Rewmmend HOME PAGE TODAV'S PAPER VIDEO MOST POPULAR TIMES TOPICS Get Home Delivery Log In Register Now L~)f ~fllt fork ximcs Search All NYTimes.com ~Q~ Business ~~~'~~ 4Cf1RhD U.S. w.y~.j RF.G IOV IiUSI:VF:Sti 'CfS('ItNOLOGI~ 3C'1IiVCl: Hh:.1 CI'll SPU127:5 UPIM1ION ..-1KTS S"C1'LE: 'fR~lY'EL JOBS REAL ESTATE AUTOS Search Business Financial Tools More in Business » select a Financial Tool Global Markets Economy DealEtook Media & Small Your Energy 8 Business Advertising Business Money Environment The Ladders° ~ ~ ~ ~ ~ ~ ~ PIT NYC ORL IND PHX BOS MIA DAL MIL LV HOU ATL LA r ' ONLY S100k+ JOBS PAYBACK TIME Public Pension Funds Are Adding Risk to Raise Returns Ee~ MARY WILLIAMS WALSH States and companies have started investing very differently when it SIGN INTO comes to the billions of dollars they are safeguarding for workers' RECOMMEND retirement. TWITTER Payback Time Articles in this series will examine the consequences of, and attempts to deal with, growing public and private debts. Pre~~otvs Articles in the Series Multimedia SIGN IN TO E- Companies are quietly and gradually MAIL moving their pension funds out of PRINT stocks. They want to reduce their SINGLE PAGE investment risk and are buying more REPRINTS long-term bonds. sr+ARE But states and other bodies of arr¢i~ irinnox government are seeking higher returns ~$UNOANCE for their pension funds, to make up for FIIM FESTIYAI ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk. "In effect, they're going to Las Vegas," said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. "Double up to catch up." Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage- backed securities and margin investing. And some states that previously shunned hedge funds are trying them now. N The Takeaway With Louise Story The Texas teachers' pension fund recently paid Chicago to receive a stream of payments from the money going into the Add to Portfolio city's parking meters in the coming years. The deal gave Chicago an upfront payment that it could use to help Boeing Co balance its budget. Alas, Chicago did not have enough Go to your Porttolio » money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the z~i6 Qhmpic5. A spokeswoman for the Texas teachers' fund said plan administrators believed that such alternative investments ~'hr~nvibrk ¢rwrz nytimes.com Linked The New York Times and Liiakedln have teamed up to give you customized industry news. Automatically. The Weekender FRIDAY. SATURDAY. SUNDAY ONLY f PER WEEK ^ CLICK TO ORDER t~,;hc ~cttr ~~ork Limcs MOST POPULAR-BUSINESS E-MAILED SLOGGED t. Your Money: When Not to Pay Down a Mortgage 2. For Consumers, Clarity on Health Care Changes 3. India's Woes Reflected in Bid [o Restart Old Plan[ 4. Microcosm of Housing Crisis on an Arizona Street 5. U-2 Spy Plane Evades the Day of Retirement 6. Corner Office: Just Give Him g Sentences, Not'War and Peace' '7. Shortcuts: For the Dishwasher's Sake, Go Easy on the Detergent 8. States look Beyond Borders to Collect Owed Taxes q. Patient Money: Nearly 6g? Time for the Medicare Maze to. In Health Care Overhaul, Boons for Hospitals and Drug Makers Go to Complete List » http://www.nytimes.com/2010/03 /09/business/09pension.html?sq=pension%20going%20t... 3/23 /2010 Jerry W Hoefer for The New York Times Fredenck E. Rowe, a Dallas investor and the former chavman of the Texas Pension Review Board. said states were looking at nskier investments in an effort to meet pension obligations. 'Payback Time -Public Pensions Are Adding Risk to Raise Returns -Series - NYTimes.c. were the likeliest way to earn 8 percent average annual returns over time. Pension funds rarely trumpet their intentions, partly to keep other big investors from trading against them. But some big corporations are unloading the stocks that have dominated penston portfolios for decades. General Motors, He>+_lett-Packard, J, C. Penney, Boeing, Federal Express and Ashland are among those that have been shifting significant amounts of pension money out of stocks. Other companies say they plan to follow suit, though more slowly. A poll of pension funds conducted by Pyramis Global Advisors last November found that more than half of corporate funds were reducing the portion they invested in United States equities. Laggards tend to be companies with big shortfalls in their pension funds. Those moving the fastest are often mature companies with large pension funds, and who fear a big bear market could decimate the funds and the companies' own finances. "The larger the pension plan, the lower-risk strategy you would like to employ," said Andrew T. Ward, the chief investment officer of Boeing, which shifted a big block of pension money out of stocks in 200.7. That helped cushion Boeing's pension fund against the big losses of 2008. Shedding stocks gave Boeing "material protection right when we needed it most," Mr. Ward said. By the time the markets had bottomed out last March, Boeing's pension fund had lost t4 percent of its value, while those of its equity-laden peers had lost 25 to 30 percent, he said. Page 2 of 3 w ~ TIMES CAST r'~X },'}la ll 11 rt 1 ~ $n C . U~E» l~ I~ .. i I .I i 1~.. ° ~ k i . I I ~ ~ aIT1C5 ' , 'i~lx . , . L• ~ , , ,. ~ .., ~. ..i. M ..... .. eA. ": 9'.' t'~crc t-. mce l~. nytime . ~ ~ s.rna/timescast tit lE\CtiP 1 ~.r F.1). rt. 00.16;0'.22 + 1~cw anu DELIVEREDeY ~L ADVERTISEMENTS Whr \rvl Fmk T.ilRr> Follow us on Twitter The Weekandor wntcn toanys top videos The new issue ofT i here Follow us on Twitter Ads by Google what's this? Buffett Stocks to Buv Now Warren Buffett and Bill Gates just put 51.5 Billion in these 2 stocks viww.StreetAUthomy.COm "We estimated that the strategy saved our company in the short term right around $4 or $5 Earn 40%+ Yeariv w/ Gold billion of funded status," he Sffid. Rollover Your IRA: Retire Securely! Free Investor Kit. $t 0,000 I, Minimum. I mpeaalMetalsl RA.com Boeing and other companies seeking to reduce their investment risk are moving into fixed- Kilier Pennv Stock Alerts income instruments, like bonds -but not just any bonds. They are buying and holding Returns of up to 7.500 % Free 8 Proftable Alerts. Try Now! bonds scheduled to pay many years in the future, when their retirees expect their money. "^"'" KiuerPe"nystocks.com The value of the bonds may fall in the meantime, just like the value of stocks. But declining bond prices are not such a worry, because the companies plan to hold the bonds for the irq:;Amt]ort€imrs ~ e e 4vn~t accompanying interest payments that will in turn go to retirees, not sell them in the T3>1fLASR@Ad8='Z.0 ail the buzz interim. Ctnooeealr is about. - ~I Towers Watson, a big benefits consulting firm, surveyed senior financial executives last year and found that two-thirds planned to decrease the stock portion of their companies' pension funds by the end of 2oto. They typically said their stock allocations would shrink by to percentage points. "That's to times the shift we might see in any given year," said Carl Hess, head of Towers Watson's investment consulting business. Economists have speculated that a truly seismic shift in pension investing away from stocks could be a drag on the market, but they say it would not be long-lasting. Corporate America's change of heart is notable all on its own, after decades of resistance to anything other than returns like those of the stock markets. But it's even more startling when compared with governments' continued loyalty to stocks. When governments scale back on the domestic stocks in their pension portfolios these days, it is often just to make way for more foreign stocks or private equities, which are not publicly traded. 1 2 NEXT PAGE » RELATED ADE-; What are Related Ads? n Nav Investmem n Stock Investment n Retirement Pension » Investment Strategy » Pension Investment http://www.nytimes.com/2010/03 /09/business/09pension.html?sq=pension%20going%20t... 3/23 /2010 Trent May, chief of Wyoming's pension fund, said states were "moving away from the perceived safety and liquidity of the investment-grade market."