hedge funds and private equity sucked hundreds of billions out of public pensions in the last ten years:
https://finance.yahoo.com/news/wall-...134658282.htmlOver 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.
one of the biggest, if not the biggest
Why Is CalPERS’ Staff Serving Up Tech Charlatanism to Its Board?
https://www.nakedcapitalism.com/2018...+capitalism%29
motif: firing the money managers and putting the money in plain vanilla index funds works better.
https://news.ncsu.edu/2018/10/pensions-management-fees/
Vanguard beats even endowments:
This comparison is more damning than you might appreciate at a first look because the endowments are taking far more risk than the prototypical 60/40 stock/bond mix suggested for retail investors:
https://www.nakedcapitalism.com/2019...dge-funds.html
Republican AG sues private equity managers (*Blackstone*) on behalf of KY taxpayers.
https://sirota.substack.com/p/a-majo...t-scandal-just
https://kcoj.kycourts.net/eFilingRet...AF33&src=false
man, i just read through this whole thread, so depressing...
chile has a "iconic" pension system setup during the dictatorship by milton friedman's pets, private fund managers take 10% of everyone's paycheck, charge a commission win or lose, each has 5 funds of supposed different risk and even though they charge you to manage your fund you have to choose which fund to be in and switching takes several days. the selling points for the system are that everyone's pension is self funded so its impossible for the state to go in debt and its YOUR money so you can count on it being there*, individuals can "choose" which company and which risk level they want, it creates a local financial market, and supposedly people would get about 70% of their last salary.. the unfortunate reality is that that number is closer to 25%, there is little actual choice, and that the fund managers' yearly profits have steadily increased to over 50% of workers total yearly contribution. The "local" financial market exists, but the fund managers have no restrictions on what to invest in and very few disclosure requirements, so it is difficult to know how much is invested abroad or at home and for what kind of activity. and probably the most toxic effect, is that obligatory 10% salary cut basically gives both companies and employees an incentive to skirt the law, either by pretending to freelance or declaring a lower salary and receiving the rest intact or straight up working without a contract. for many people, once you put together 5-6 years of unemployment/freelancing it no longer even makes sense to put in money to a $130 pension
anyways my takeaway from reading this whole thread and applying it to the local situation, is that private or public fund managers need serious oversight otherwise the money is just too powerful, they can buy politicians like toilet paper. in fact the system here was actually fairer when they started it 30 years ago, but under every government they just slip more hidden fees, reduce their capital requirements, their taxes, ease up disclosure, etc etc.. who knows, they might have been right and found the perfect system, with the corruption we'll never know..
right now with the pandemic, economically our govt has basically bailout/stimulus for businesses (including using workers unemployment funds- similarly setup to the pension funds with an individual system- to cover %of wages during pandemic) but very little for people and today a plan for people to be able to take 10% out of their pension fund now got passed- the right is going to our "supreme court" and the president can still try to veto (he is in major lame duck territory and i suspect he will at least try to veto because he has nothing to lose at this point). So after 15 years of people protesting, the massive unrest we had 9 months ago, the funds finally appear to be cracking... but after reading this thread its pretty clear whatever comes next will likely fail for the same reasons
Thanks for the keyhole view from your own country, diego. It's really weird -- maybe predictable from the outside -- that the USA is starting to resemble Chile in certain ways.
Colonialism came home, maybe. The financial sector are the masters and we are the farm.
Previous to Rick Scott's reforms to Florida Retirement System, pensions were PLATINUM: 50% of average of 5 highest years' income (calculation includes overtime hours, unlimited sick leave and 30 years to qualify [33 years now]) plus 3% Cost of Living Adjustment increase every year for the rest of your life.
After Scott's reforms, they're now just GOLDEN - no cost of living adjustment for years after 2011 (a fraction is subtracted for these). Also, to encourage people to retire, they ins uted DROP which if entered, you get a pot of 5 years' retirement IN ADDITION to your regular income but you must retire after 5 years of entering DROP. Please stop complaining about how low these teachers pay are and silently calculate 1 1/2 times and consider that whether they do the work (not even do it well), they still get paid. Sometimes, it's "Can someone fix this program - my laptop is giving trouble and I have to go in for another". Like any other unionized sector, it's near impossible to fire the bad and the remaining good do all the work. No where in the private sector would you get this kind of retirement or guarantee of job security/pension no matter the job performance.
And WE are all paying for it - and for what? Crapping education outcomes.
Sorry to hear Rick Scott crapified your pensions in FL.
Blaming teachers for bad education while saying nothing of administrative bloat and decades long disinvestment on the part of the states discloses a narrow, more or less partisan point of view.
If you think public pension returns are bad now, just wait. Many of them went heavily into REIT's over the last 20 years and they are due to take a greasy post covid. Big box stores and shopping malls were already sucking because of Amazon etc. Now with covid, big companies were forced into allowing/requiring employees to work remotely and realized that it didn't hurt efficiency. With zoom, facetime, etc. companies are realizing they don't need those expensive office towers, conference rooms, etc. I know in San Antonio class A warehouse space also is way overbuilt because all the REIT's jumped in at the same time and we have millions of square feet sitting vacant.
Yep - Facebook, iirc, is considering allowing employees to work remotely POST-covid. If other companies follow suit, the policy could decimate big city office space/real estate values.
Which could be an opportunity to re-classify the area and help with housing crisis in many cities.
Also, take their tax dollars with them.
State get the taxes no matter what you do. Online now is taxed, property taxes, etc.
Not to worry - at least, as far as tech companies are concerned - imo, their location is based more on presence of top CS universities (recruiting, collaboration) - not big city. See Seattle (U of Washington), Mountain View/Menlo Park (Stanford) vs Los Angeles, Miami, etc. New York, of course, is the exception (Amazon, not withstanding :-)
I think it's where you are physically (like NBA players). Dd couldn't stay longer than 3 weeks (at a time) teleworking in Florida during covid because of (her resident state) tax complications.
In case, I wasn't clear - I'm referring to moving to another state instead of living in the big (in this case - tech) cities.
There are reasons for living in the big cities though. It's the main reason Silicon Valley hasn't gone anywhere, you only get more tech hubs in other places.
Things like ultra fast internet infrastructure, close access to international airports, 24/7 service, having a presence where the best talent is, etc.
KKR now faces discovery in this case. The stakes are high because KKR invests for pension funds in many states.
The case is Mayberry v. KKR.
https://www.nakedcapitalism.com/2021/02/hoist-on-his-own-pe -kentucky-attorney-generals-apparent-plan-to-settle-landmark-pension-case-mayberry-v-kkr-likely-to-be-undermined-by-discovery.htmlBackground
Mayberry v. KKR is a high stakes case, confirmed by the legal scorched earth tactics of the defendants, Blackstone, KKR/Prisma, and PAAMCO, along with key principals, including Blackstone founder and CEO Steve Schwarzman and KKR co-founder and CEO Henry Kravis. The case was first filed in December 2017 derivatively, on behalf of eight beneficiaries of the fabulously badly managed, corrupt, and underfunded Kentucky Retirement System. The plaintiffs alleged that that Blackstone, KKR/Prisma and PAAMCO had each sold KRS high fee, high risk customized hedge funds that they falsely billed as the impossible combination of “low risk, high return,” contradicting what their own SEC filings said about the very same products. The Kentucky Retirement System made a sudden, large commitment to all three funds and even added to the pot despite underperformance. As we explained:
The fund managers allegedly focused on KRS and other desperate and clueless public pension funds who were unsuitable investors, particularly at the risk levels they were taking. KRS made what was a huge investment for a pension fund of its size. $1.2 billion across three funds all at once, in 2011, roughly 10% of its total assets at the time. They all had troublingly cute names. The KKR/Prisma funds was “Daniel Boone,” the Blackstone fund was “Henry Clay” and the PAAMCO fund, “Colonels”.
In the case of KKR/Prisma, the fund had installed an employee at KRS as well as having a KKR/Prisma executive sitting as a non-voting member of the KRS board. The filing argues that that contributed to KRS investing an additional $300 million into the worst performing hedge fund even as it was exiting other hedge funds.
The ante is much higher than the potentially meaty recoveries. Private equity and hedge funds fetishize secrecy because too often, their conduct will not stand up to scrutiny. The giant fund managers are almost certain to be most afraid of discovery, since they sharp practices they used with Kentucky Retirement Systems were very likely to have been replicated at other public pension funds. Even the limited discovery so far uncovered more misconduct and allowed the plaintiffs to add to their claims.
custom benchmarks hide PE's crappy performance
https://www.nakedcapitalism.com/2021...ase-study.htmlEnnis’ latest paper is if anything more damning than it appears. He used the data from 24 state-level public pension funds. It was only 24 due to the need to have everyone use the same fiscal year end (June 30) and report performance net of costs (Ennis said 1/3 fell short on that criterion). These state funds will generally be larger and more professionally managed than smaller pension funds, particularly police and fire pension funds. In other words, the level of underperformance is certain to increase if smaller funds were included. It’s also a reasonable su ion that bigger funds that did not report returns net of fees felt the need to exaggerate their performance.
You can see Ennis’ conclusions in data form below. Negative excess returns means the funds would have done better with simple-minded indexing.
Note again his assumptions about investment expenses are conservative. Ennis shows in Table 1 the estimated cost of investing in various alternative investment strategies. Private equity is listed at 5.7%. CalPERS is continuing to use 7% as its estimate, per board member remarks at its last public meetings.
Ennis also do ents how public pension funds lie to themselves, beneficiaries, taxpayers, and the press via flattering benchmarks. He explains how all-too-cooperative advisers feather their own beds:
Public pension funds use benchmarks of their own devising, describing them variously as “policy,” “custom,” “strategic,” or “composite” benchmarks. I refer to them as reporting benchmarks (RBs). …RBs are often opaque and difficult to replicate independently. RBs invariably include one or more active investment return series and thus are not passively investable. They are subjective in several respects, rendering their fashioning something of a black art. Moreover, they are devised by the funds’ staff and consultants, the same parties that are responsible for recommending investment strategy, selecting managers, and implementing the investment program. In other words, the benchmarkers have conflicting interests, acting as player as well as scorekeeper. To state the obvious, perhaps, RBs generally do not measure up to the standards of objectively determined, passively investable benchmarks used by scholars and serious prac ioner-researchers..Ennis uses CalPERS as a case study because its behavior is typical:
Public fund portfolios often exhibit close year-to-year tracking with their RB. This results in part from how RBs are revised over time…
No doubt the benchmarkers see such tweaking as a way of legitimizing the benchmark so that it better aligns with the actual market, asset class, and factor exposures of the fund. It accomplishes that, to be sure. But it also reduces the value of the benchmark as a performance gauge, because the more a benchmark is tailored to fit the process being measured, the less information it can provide. At some point, it ceases to be a measuring stick altogether and becomes merely a shadow.
We talk about “hugging the benchmark” in portfolio management. Here is another twist on that theme: forcing the benchmark to hug the portfolio.
CalPERS’s portfolio return tracks that of the RB extraordinarily closely. The 10-year annualized returns differ by all of 3 bps, 8.54% versus 8.51%. Year to year, the two-return series move in virtual lockstep, as demonstrated by the measures of statistical fit—an R2 of 99.5% and tracking error of just 0.5%—and even by simple visual inspection of the annual return differences. For example, excluding fiscal years 2012 and 2013, the annual return deviations from the RB are no greater than 0.4%. This is a skintight fit.
CalPERS’s EB return series also has a close statistical fit with CalPERS’s reported returns in terms of R2 and tracking error, although not as snug a fit as with the RB. Moreover, there is an important difference in the level of returns. Whereas CalPERS’s 10-year annualized return is virtually identical to that of its RB, it underperforms the EB by 114 bps a year. And it does so with remarkable consistency: in 10 years out of 10.
The return shortfall relative to the EB is statistically significant, with a t-statistic of –2.9. And it is of huge economic significance: A 114 bp shortfall on a $470 billion portfolio is more than $5 billion a year, a sum that would fund a lot of pensions.
Seems like a way to get affordable housing jumpstarted. Bit of conversion, but you already have a working s , to prompt some mixed use.
Cory Doctorow with receipts and details about a new disclosure law proposed in NY
MEGO= "my eyes glaze over"
Writing for The Lever, Matthew Cunningham-Cook reports on New York A09948, "to amend the retirement and social security law, in relation to disclosing certain investment managers and investments."
https://www.levernews.com/wall-streets-biggest-secret-could-be-exposed/
The things this law would require are a kind of inverse-mold of the scam itself, like flipping a doctored photo to negative to spot the tampering. If this law passes, then, for the first time, the Wall Street firms that handle New York's $269B public pension would have to disclose the cozy – and nakedly corrupt – contracting terms they arrive at with the funds' overseers. For example, it would require disclosure of when fund managers charge private jets to the pension fund:
https://www.ft.com/content/1212b266-8760-4766-a03e-9e7db203b5d2
But gold-plated expenses are just the obvious part of the corruption. The good stuff is pure MEGO: for example, the Carlyle Group's contracts reserve the right to invest pensions' money in ways that lose money for the pension, but make money for Carlyle Group execs and their pals:
https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=500146
Leaked contracts reveal that public pensions have to promise not to demand a jury trial if they get ripped off by private equity firms, and to indemnify fund managers for all misconduct unless it rises to the (very high bar of) "fraud, gross negligence or willful misconduct."
Some of these contracts explicitly waive the "fiduciary duty" – the obligation on fund managers to put the pensioners' interests ahead of their own
.
If passed, the New York bill will expose standard contracting terms that stretch out nationwide, thanks to all of the cities, towns and states that enter into comparable high-risk/high-fee arrangements with the same Wall Street firms.
It will force private equity firms to disclose what they're buying with pensioners' money – for example, if they're buying group homes, laying off staff, and killing and maiming the residents, as KKR did with public pension money:
https://www.buzzfeednews.com/article/kendalltaggart/kkr-brightspring-disability-private-equity-abuse
https://pluralistic.net/2022/05/05/mego/The Center for Economic and Policy Research's co-director Eileen Appelbaum succinctly described the disclosure demand to Cunningham-Cook: "How good are the contracts? What are the fees, expectations in terms of returns?" These are modest demands, and the outright refusal to meet them should raise alarm bells.
This is especially true in light of the corrupt arrangements that have been revealed, like former NYC Comptroller Alan Hevesi's conviction of taking bribes from Carlyle Group in exchange for access to the city's pension money. DiNapoli, the new comptroller, promised an ethics overhaul – and then spectacularly failed to deliver. How bad is it? Navnoor Kang, the former NYC head of fixed incomes, went to prison in 2018 for taking bribes from brokers:
https://www.wsj.com/articles/former-new-york-pension-fund-executive-sentenced-to-21-months-in-prison-1531429910
The disclosure law didn't pass.
In a landmark study en led An Inconvenient Fact: Private Equity Returns & the Billionaire Factory, Oxford University’s Ludovic Phalippou do ented that private equity funds “have returned about the same as public equity indices since at least 2006”, while extracting nearly a quarter-trillion dollars in fees from public pension systems.
https://www.theguardian.com/business...private-equityA 2018 Yahoo News analysis found that US pension systems had paid more than $600bn in fees for hedge fund, private equity, real estate and other alternative investments over a decade.
“The big picture is that they’re getting a lot of money for what they’re doing, and they’re not delivering what they have promised or what they pretend they’re delivering,” Phalippou told the New York Times in 2021.
Even some on Wall Street admit the truth: a JP Morgan study in 2021 found that private equity has barely outperformed the stock market, but it remains unclear whether that “very thin” outperformance is worth the risk of opaque and illiquid investments whose actual value is often impossible to determine – investments that could crater when the money is most needed.
https://www.dailyitem.com/business/s...5315cb646.htmlAs chairman of the Montgomery County, Pennsylvania, commissioners, Shapiro in 2013 persuaded colleagues to fire dozens of traditional pension managers and replace them with low-cost index funds.
Governors don't directly control pension investments. They do appoint some members of the pension boards, who are charged with managing funds to members' advantage.
Investment profits alone are not enough to finance future payments from the underfunded plans because of past investment returns, a high number of retirees compared with active workers, and the state's failure to fully fund pensions in the 2000s.
State and school district taxpayers contribute more than $8 billion a year to keep the plans healthy, with help from smaller employee contributions from future pensioners. The state also has more than 1,000 independently managed, locally funded county, public authority, municipal, police, firefighter, and other pension plans — more than in any other state.
Shapiro told reporters Tuesday that he hopes to do for Pennsylvania what he did for Montgomery County when he headed county government in the early 2010s: "Fire the money managers, saving millions of dollars that's going to their high fees."
He blamed the private managers for "costing the county millions and, frankly, leaving us with far worse returns than simply investing in a passive system like Vanguard" Group, the Malvern, Pennsylvania, company that pioneered low-fee stock-index funds that rise and fall with broad market indexes such as the S&P 500.
There are currently 1 users browsing this thread. (0 members and 1 guests)
Posting Permissions
Reply With Quote
